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BENEFIT PRINCIPLE: A principle of taxation in which taxes are based on the benefits received by people using the good financed with the tax. The benefit principle is often difficult to implement because by their very nature, many government produced goods (public goods) do not have easily measured benefits. But in those cases where benefits are identifiable, government is not shy about establishing taxes, fees, or charges in accordance with the benefit principle. Public college tuition, national park admission fees, and gasoline excise taxes are three common examples. The beneficiaries of education, a wilderness experience, and highway use are asked (required) to pay accordingly.
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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, 2000-2024. [Accessed: May 2, 2024]. Check Out These Related Terms... | | | | | Or For A Little Background... | | | | | | | | | | | And For Further Study... | | | | | | | | | | Related Websites (Will Open in New Window)... | | |
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Today, you are likely to spend a great deal of time flipping through the yellow pages seeking to buy either a hepa filter for your furnace or a wall poster commemorating next Thursday. Be on the lookout for pencil sharpeners with an attitude. Your Complete Scope
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Okun's Law posits that the unemployment rate increases by 1% for every 2% gap between real GDP and full-employment real GDP.
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"Leadership is based on inspiration, not domination; on cooperation, not intimidation. " -- William A. Ward
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APC Average Propensity to Consume
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