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An economist would draw no such conclusions. The essential economic question is how resources are used in production. This hasn't changed. One unit of labor is still being em- ployed at the factory; now it's simply the owner, not a hired worker. In either case, one unit of labor is not available for the production of other goods and services. Hence, society is still paying $245 for jeans, whether the owners of Low-Rider Jeans write checks in that amount or not. The only difference is that we now have an implicit cost rather than an ex- plicit one. We really don't care who sews jeans-the essential point is that someone (i.e., a unit of labor) does. The same would be true if Low-Rider Jeans owned its own factory rather than rented it. If the factory were owned rather than rented, the owners probably wouldn't write any rent checks. Hence, accounting costs would drop by $100 per day. But the factory would still be in use for jeans production and therefore unavailable for the production of other goods and services. The economic (resource) cost of producing 15 pairs of jeans would still be $245. The distinction between an economic cost and an accounting cost is essentially one be- cween resource and dollar costs. Dollar cost refers to the explicit dollar outlays made by a producer; it's the lifeblood of accountants. Economic cost, in contrast, refers to the value of

An economist would draw no such conclusions. The essential economic question is how resources are used in production. This hasn't changed. One unit of labor is still being em- ployed at the factory; now it's simply the owner, not a hired worker. In either case, one unit of labor is not available for the production of other goods and services. Hence, society is still paying $245 for jeans, whether the owners of Low-Rider Jeans write checks in that amount or not. The only difference is that we now have an implicit cost rather than an ex- plicit one. We really don't care who sews jeans-the essential point is that someone (i.e., a unit of labor) does. The same would be true if Low-Rider Jeans owned its own factory rather than rented it. If the factory were owned rather than rented, the owners probably wouldn't write any rent checks. Hence, accounting costs would drop by $100 per day. But the factory would still be in use for jeans production and therefore unavailable for the production of other goods and services. The economic (resource) cost of producing 15 pairs of jeans would still be $245. The distinction between an economic cost and an accounting cost is essentially one be- cween resource and dollar costs. Dollar cost refers to the explicit dollar outlays made by a producer; it's the lifeblood of accountants. Economic cost, in contrast, refers to the value of

Economics: Private and Public Choice (MindTap Course List)
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter21: Costs And The Supply Of Goods
Section: Chapter Questions
Problem 16CQ
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all resources used in the production process; it's the lifeblood of economists. In other words, economists count costs as Economic cost = Explicit costs + Implicit costs As this formula suggests, economic and accounting costs will diverge whenever any factor of production is not paid an explicit wage (or rent, etc.).
Transcribed Image Text:all resources used in the production process; it's the lifeblood of economists. In other words, economists count costs as Economic cost = Explicit costs + Implicit costs As this formula suggests, economic and accounting costs will diverge whenever any factor of production is not paid an explicit wage (or rent, etc.).
Economic Cost An economist would draw no such conclusions. The essential economic question is how many resources are used in production. This hasn't changed, One unit of labor is still being em- ployed at the factory; now it's simply the owner, not a hired worker. In either case, one unit of labor is not available for the production of other goods and services. Hence, society is still paying $245 for jeans, whether the owners of Low-Rider Jeans write checks in that amount or not. The only difference is that we now have an implicit cost rather than an eX- plicit one. We really don't care who sews jeans-the essential point is that someone (i.e., a unit of labor) does. The same would be true if Low-Rider Jeans owned its own factory rather than rented it. If the factory were owned rather than rented, the owners probably wouldn't write any rent checks. Hence, accounting costs would drop by $100 per day. But the factory would still be in use for jeans production and therefore unavailable for the production of other goods and services. The economic (resource) cost of producing 15 pairs of jeans would still be $245. The distinction between an economic cost and an accounting cost is essentially one be- tween resource and dollar costs. Dollar cost refers to the explicit dollar outlays made by a producer; it's the lifeblood of accountants. Economic cost, in contrast, refers to the value of
Transcribed Image Text:Economic Cost An economist would draw no such conclusions. The essential economic question is how many resources are used in production. This hasn't changed, One unit of labor is still being em- ployed at the factory; now it's simply the owner, not a hired worker. In either case, one unit of labor is not available for the production of other goods and services. Hence, society is still paying $245 for jeans, whether the owners of Low-Rider Jeans write checks in that amount or not. The only difference is that we now have an implicit cost rather than an eX- plicit one. We really don't care who sews jeans-the essential point is that someone (i.e., a unit of labor) does. The same would be true if Low-Rider Jeans owned its own factory rather than rented it. If the factory were owned rather than rented, the owners probably wouldn't write any rent checks. Hence, accounting costs would drop by $100 per day. But the factory would still be in use for jeans production and therefore unavailable for the production of other goods and services. The economic (resource) cost of producing 15 pairs of jeans would still be $245. The distinction between an economic cost and an accounting cost is essentially one be- tween resource and dollar costs. Dollar cost refers to the explicit dollar outlays made by a producer; it's the lifeblood of accountants. Economic cost, in contrast, refers to the value of
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