1 Distinguish between explicit and implicit costs giving exa

1. Distinguish between explicit and implicit costs, giving examples of each. What are some explicit and implicit costs of attending college?

Solution

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Explicit costs refer to expenses that are contractual in nature and definite in amount. They are easily recognizable for classification and recording.
Examples of explicit costs are rent, wages, salaries and utility bills.
Implicit costs represent costs associated with an action\'s tradeoff. They are costs which are not recorded but instead implied. It can also be defined as the opportunity cost of an activity (i.e. what a company or individual could have earned had a different decision been made).
For instance, the time and effort that an owner puts into the maintenance of a company, rather than working on expansion, can be viewed as an implicit cost of running the business.
Attending college has both explicit and implicit costs associated with it. Examples of explicit costs would be cost of tuition fees, cost of books and cost of other stationery. Examples of implicit costs are transportation costs, vehicle insurance costs and the money that could have been earned by doing a full time job instead of attending college.