Explicit and Implicit Costs

1) Can you please elaborate on principal-agent problem and economic cost?

2) What is the difference between: Command System, Socialism and Communism

3) Is scarcity a basis for studying economy?

4) Describe economy cost in easy words?

You can read the following links to understand the questions asked better:

1) Principal- Agent Problem

https://www.boundless.com/economics/textbooks/boundless-economics-textbook/challenges-to-efficient-outcomes-15/sources-of-inefficiency-83/principle-agent-problem-319-12416/

2) Command Systems typically work under Communist or socialism kind of regimes.

3) Scarcity is infact one of the most important reason why we must be studying economics in order to ensure the scarce resources may be fully employed and utilised in order to achieve economies of scale.

4) For this you need to understand what are explicit and implicit costs.

Explicit costs are the regular costs which you incur and which you need to account for in your account statements

Implicit Costs: Unlike accounting costs, economic costs consider both the explicit and implicit costs to the company that occur during the fiscal year. Implicit costs are associated with resources that are provided to the company with no price tag. For example, if a company operates out of a building it owns, it experiences an implicit cost from the rent it could earn from leasing the building to another company. The building could earn $3,000 a month from a commercial renter, so the company has an implicit cost of $3,000 to add to its economic costs.

Economic costs not only take into account the explicit cost but they include the implicit cost as well.

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