What is the importance of economic cost in economic analysis?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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In economic analysis, it is important to consider economic cost so that you can determine which choice is the right one.

Economic cost is distinguished from accounting cost.  Accounting cost only takes into account how much you spend in order to do something.  For example, if I go to a movie, the accounting cost might be $7 because that is what the ticket costs.  Economic cost goes further by taking opportunity costs into account.  Let's say that I spend 2 hours at the movies and could make $10 in each of those hours by working.  Now, going to the movie costs me $27, not $7.  By using economic cost in my analysis, I become more aware of the true costs of my actions and I can make a more informed decision about what I want to do.

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