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DEPOSIT INSURANCE: A program of guaranteeing, or insuring, customers' deposits at a bank or similar institution. Since the 1930s bank deposits have been insured by the Federal Deposit Insurance Corporation (FDIC). Other programs have insured deposits at credit unions and savings and loan associations. The FDIC works like this -- If a bank is unable to pay back all or part of its customers' deposits because it has done something like go out of business, then the FDIC steps in to make up the difference--up to a pretty hefty limit.
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                           ECONOMIC COST: An alternative term for opportunity cost, which is the highest valued alternative foregone in the pursuit of an activity. Opportunity cost, or economic cost, is one of the most fundamental concepts used in the study of economics, hence the reason it is also termed economic cost. Economic, or opportunity cost is also commonly termed just cost. The term economic cost is often used synonymously with opportunity cost. Replacing "opportunity" with "economic" serves to punctuate the central role opportunity cost plays in economics. It also distinguishes "cost" as used in economics, with "cost" as used in other disciplines, like accounting.Starting With ScarcityThe ultimate source of economic 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 economic cost. Doing one thing prevents doing another.Because economist 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. Accounting CostThe primary contrast to economic cost is accounting cost. An accounting cost is an actual outlay or expense incurred in production that shows up in a firm's accounting statement or other records. However, every accounting cost tracked by a firm is not necessarily an economic or opportunity cost. Moreover, every economic cost incurred by a firm does not necessarily show up as an accounting cost.Consider a few examples. - Accounting Cost, Not Economic Cost: In some cases, an accounting cost recorded by a firm does not reflect an economic or opportunity cost. In other words, there is no foregone satisfaction. The recorded item, more often than not, is actually economic profit, revenue that is earned in excess of economic cost.
An example is provided by Winston Smythe Kennsington III, the Chief Executive Officer of OmniConglomerate, Inc. Winston receives an annual "salary" of $10 million. This $10 million salary is recorded as an accounting cost by the firm. While he is an excellent leader, this salary exceeds his opportunity cost. If he were not head of OmniConglomerate, his next best alternative is to assume CEO status of MegaCorp International at a $5 million annual salary. As such, only half of Winston's $10 million salary is an economic cost, the other half is actually economic profit.
- Economic Cost, Not Accounting Cost: In some cases an economic cost incurred by a firm is not recorded as an accounting cost. In other words, there is foregone satisfaction, but this economic cost never makes it to the firm's records. For many firms, this untracked cost falls under the heading of normal profit, the opportunity cost of entrepreneurship. However, the cost of other resources can also go unrecorded.
Consider the situation facing Manny Mustard's House of Sandwich. Manny Mustard, the owner and proprietor of this restaurant, supplies his own time, effort, equipment, and organizational skills to the successful operation of this business. When the day is done, Manny subtracts his out-of-pocket expenses (for condiments, electricity, hired staff, and the like) from the revenue received. This is his income, which he probably considers the firm's profit. However, included within this "profit" is unrecorded economic cost for his labor, capital, land, and entrepreneurship.
Recommended Citation:ECONOMIC COST, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: April 24, 2024].
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RED AGGRESSERINE
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Today, you are likely to spend a great deal of time surfing the Internet trying to buy either a set of luggage without wheels or a how-to book on wine tasting. Be on the lookout for telephone calls from long-lost relatives.
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Before 1933, the U.S. dime was legal as payment only in transactions of $10 or less.
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"The greatest things ever done on Earth have been done little by little. " -- William Jennings Bryan
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FSL
Federal Savings and Loan Association
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