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NET EXPORTS: The difference between exports, goods and services produced by the domestic economy and purchased by the foreign sector, and imports, goods and services produced by the foreign sector and purchased by the domestic economy. While exports and imports important unto themselves, when combined into a single measure net exports captures the overall interaction between the foreign sector and the domestic economy. Arithmetically speaking, if exports exceed imports, then net exports are positive, and if imports exceed exports, the net exports are negative. You might want to examine the closely related entry, balance of trade.
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                           ACCOUNTING COST: An actual outlay or expenses incurred in the production of a good that shows up in a firm's accounting statements and records. Accounting cost is an explicit payment (that is, money changing hands) incurred by a firm. Accounting cost, while very important to accountants, company CEOs, shareholders, and the Internal Revenue Service, is only minimally important to economists. The reason is that economists are more interested in economic cost (also called opportunity cost), which is the value of foregone production. Accounting cost is essentially an out-of-pocket, explicit payment that generally compensates the resources used by a firm for the opportunity cost incurred in production. A worker like Phoebe Pankovic, for example, might be paid $10 an hour to produce Wacky Willy Stuffed Amigos (those cute and cuddly armadillos and tarantulas) to compensate for the $10 worth of other goods she is NOT producing at another job. That is, Phoebe could be producing $10 worth of Hot Momma Fudge Bananarama Ice Cream Sundaes rather than Wacky Willy Stuffed Amigos. This $10 hourly expense is an accounting cost of the firm that is also compensation for the economic cost of the worker.However, an economic cost need not be an accounting cost and vice versa. - Economic Cost, No Accounting Cost: In some cases, the resources used by a firm for production incur an economic cost without an explicit payment showing up on the official accounting records. One of the more important examples, especially when the topic turns to the analysis of short-run production, is normal profit. The entrepreneurs of a firm incur the opportunity cost of foregone profit from another business activity, but this is never considered an accounting cost.
- Accounting Cost, No Economic Cost: Alternatively, an accounting cost incurred by a firm might not be paid as compensation for an economic cost. Suppose for example, that Phoebe Pankovic receives an hourly wage of $10 to produce Wacky Willy Stuffed Amigos. However, her opportunity cost, the value of Hot Momma Fudge Bananarama Ice Cream Sundaes production foregone is only $7. In this case only $7 of the accounting cost corresponds to an economic cost. The remaining $3 is an accounting cost that is not compensation for any economic cost. In effect, this extra $3 is actually part of the economic profit of the firm that is received by the worker rather than the entrepreneurs.
Recommended Citation:ACCOUNTING COST, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2023. [Accessed: September 23, 2023].
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