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ZERO BOND: Also termed a zero coupon bond, a bond that does not pay interest, in which the return is generated by the difference between the purchase price and the face value paid at maturity. Because they do not pay interest, zero bonds are sold at a discount. For example, a $10,000 zero bond that matures in one year, would generate a 10% return if it sold at a discount of $9,000.

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COST:

An alternative term for economic or opportunity cost, which is the highest valued alternative foregone in the pursuit of an activity. Opportunity cost is one of the most fundamental concepts used in the study of economics, hence when the term cost is used in the study of economics without modification, it usually means economic or opportunity cost.
Because economists like to economize on effort, the succinct term cost is also frequently used in lieu of opportunity cost or economic cost. In fact, whenever the term cost is used in economics, absent of any modifiers, it inevitably means economic or opportunity cost.

Starting With Scarcity

The ultimate source of cost is the pervasive problem of scarcity (unlimited wants and needs, but limited resources). Whenever limited resources are used to satisfy one want or need, an unlimited number of other wants and needs remain unsatisfied. Hence pursuing one activity means alternatives are not pursued. Herein lies the essence of cost. Doing one thing prevents doing another.

Cost Plus...

There are a seemingly endless number of modifiers that can be used with the term cost. Here is a lengthy, but necessarily incomplete list.
  • Accounting Cost: An actual outlay or expense incurred in production that shows up a firm's accounting statements or records, which may or may not be an opportunity cost.

  • Average Cost: The opportunity cost incurred per unit in the production of a good, calculated by dividing the total cost of production by the quantity of output produced

  • Explicit Cost: An opportunity cost that involves a money payment and usually a market transaction.

  • External Cost: An opportunity that is not included in the market price of a good because it is not included in the supply price.

  • Fixed Cost: An opportunity that does not change with changes in the quantity of output produced.

  • Historical Cost: An accounting principle stating that expenses are recorded in terms of original or acquisition cost, which may or may not reflect opportunity cost or current market value.

  • Implicit Cost: An opportunity cost that does NOT involve a money payment or a market transaction.

  • Marginal Cost: The change in total opportunity cost resulting from a change in the quantity of output produced by a firm in the short run.

  • Production Cost: The opportunity cost of using labor, capital, land, and entrepreneurship in the production of goods and services.

  • Total Cost: The opportunity cost incurred by all of the factors of production used by a firm to produce a good or service, including wages paid to labor, rent paid for the land, interest paid to capital owners, and a normal profit paid to entrepreneurs.

  • Variable Cost: An opportunity cost that changes with changes in the quantity of output produced.
This is a modest list at best. Other terms contain the word "cost" include average variable cost, total variable cost, average fixed cost, total fixed cost, total factor cost, average factor cost, and marginal factor cost. Other "cost" terms pop up in the study of economics as attention is directed to specific topics and issues.

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Recommended Citation:

COST, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2020. [Accessed: October 20, 2020].


Check Out These Related Terms...

     | economic cost | opportunity cost | explicit cost | implicit cost | free good | free resource | free lunch |


Or For A Little Background...

     | scarcity | limited resources | unlimited wants and needs | satisfaction | value |


And For Further Study...

     | economics | dismal science | three questions of allocation | division of labor | economic good | first rule of scarcity | factors of production | opportunity cost, production possibilities | investment, production possibilities | accounting cost | normal profit | short-run production analysis | total cost | production cost |


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