Economic Concepts & Models Codexery

Cost

Cost is the metric of resources expended in production or decision-making.

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Cost is a metric used in economics to total up the result of a process or a decision.[1] In the accounting field, the term cost denotes the monetary amount of expenditures for items like supplies, services, labor, products, and equipment acquired by a business or other accounting entity, as recorded on invoices and in bookkeeping records.[2][3]

Quick Facts

Definition
Value of money used up to produce something or deliver a service
Business context
Acquisition cost, sum of production cost and transaction costs
Accounting types
  • Monetary value of expenditures for supplies
  • services
  • labor
  • products
  • equipment
Opportunity cost
Value of the best alternative not chosen
Social cost
Sum of private costs and external costs

Facts from the source article.

Key facts and history

Opportunity cost is the value of the best alternative not chosen to pursue the current endeavor.[4] Manufacturing costs are directly involved in producing products, such as raw materials and worker charges.[5] Non-manufacturing costs are not directly incurred in manufacturing, like sales personnel salaries and advertising expenses.[6] A private cost is the amount a buyer pays a seller when purchasing a good or service, representing costs internal to a firm's production.[7][8]

External costs, also called externalities, are costs imposed on individuals or society at large—not the buyer—as a consequence of a transaction, and they are often non-monetary and hard to quantify.[9][10] Adding private costs and external costs together yields the social cost.[11][12] Intrinsic motivation can be linked to non-monetary costs.[13]

What the cited sources add

The tutor2u account states that external costs are often the result of market failures, such as a company polluting without paying cleanup costs.[10] It gives traffic congestion as another example of an external cost that creates lost time and productivity for society.[10] The Reviso glossary explains that cost does not include a mark-up for profit, and from a seller's viewpoint it is the amount spent to produce a product.[3] The Energy Education source notes that a firm paying both private and external costs is paying the social cost.[8]

The Economics Help source states that rational choice theory suggests individuals will only consider their private costs.[12] The Advanced article on total manufacturing cost provides a formula: Direct materials + Direct labour + Manufacturing overhead.[14]

References

  1. Wikipedia, "Cost" (CC BY-SA 4.0), which cites: O'Sullivan, "Economics: Principles in Action", Pearson Prentice Hall, 2003, p. 16 (we also read that source) en.wikipedia.org
  2. Wikipedia, "Cost" (CC BY-SA 4.0), which cites: Reviso, "What is cost?" (we also read that source) en.wikipedia.org
  3. Reviso, "What is cost?". facts only, no text reused. reviso.com
  4. Wikipedia, "Cost" (CC BY-SA 4.0), which cites: "Opportunity Cost: Definition, Calculation Formula, and Examples", Investopedia (original not read by us) en.wikipedia.org
  5. Wikipedia, "Cost" (CC BY-SA 4.0), which cites: "Production Costs vs. Manufacturing Costs: What's the Difference?", Investopedia (original not read by us) en.wikipedia.org
  6. Wikipedia, "Cost" (CC BY-SA 4.0), which cites: "2.3: Cost Terminology", Business LibreTexts, 2021-02-27 (original not read by us) en.wikipedia.org
  7. Wikipedia, "Cost" (CC BY-SA 4.0), which cites: "Private cost - Energy Education", energyeducation.ca (we also read that source) en.wikipedia.org
  8. "Private cost - Energy Education", energyeducation.ca. facts only, no text reused. energyeducation.ca
  9. Wikipedia, "Cost" (CC BY-SA 4.0), which cites: "External Cost", www.tutor2u.net (we also read that source) en.wikipedia.org
  10. "External Cost", www.tutor2u.net. facts only, no text reused. tutor2u.net
  11. Wikipedia, "Cost" (CC BY-SA 4.0), which cites: "Social Cost", Economics Help (we also read that source) en.wikipedia.org
  12. "Social Cost", Economics Help. facts only, no text reused. economicshelp.org
  13. Wikipedia, "Cost" (CC BY-SA 4.0), which cites: Sorauren, "Non-Monetary Incentives: Do People Work Only for Money?", Business Ethics Quarterly, 2000, p. 925–944 (original not read by us) en.wikipedia.org
  14. "Total manufacturing cost: What is it and how to calculate it", Advanced. facts only, no text reused. oneadvanced.com

Each numbered sentence above was checked against the source it cites before publication. Sentences citing Wikipedia adapt text from the English Wikipedia article Cost (contributors), used under CC BY-SA 4.0; this entry is available under the same licence. Other sources were used for facts only; no text or images are copied from them.

More in Economic Concepts & Models

Cost curveCost of livingCost–benefit analysisDeadweight lossDepreciationDistribution (economics)DividendDivision of labourEconomic bubbleEconomic equilibriumEconomic modelEconomic surplus

Sources

Compiled from Wikipedia and the sources listed below. Text from Wikipedia is available under CC BY-SA 4.0; this entry is adapted from it.

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