Question

1.What are the distinctions between the explicit and implicit costs?

2. What are the explicit and implicit costs of going to university?

3. List and explain each carefully. What are economic costs of university attendance?

Answer 1

1. Explicit costs are the costs which are actually incurred and not the benefits forgone. So, explicit costs involve a real cash outflow. For example, wages paid to the workers is an example explicit costs.

Implicit costs are opportunity costs. These are not real costs incurred rather these are benefits or values foregone. For example, suppose I leave my job (which pays me an annual salary of $100,000) to start a business. Now, when I start the business, I can no more earn that salary i.e. I am foregoing this salary to start the business. Therefore, the forgone salary is an example of implicit or opportunity cost.