Question

Jane is a student at a university. She pays​ $10,000 per year in​ tuition, $4,000 per year in living​ expenses, and​ $800 per year for books. Were she not in​ school, she could earn​ $20,000 per year working as a bookkeeper and she would not live with her parents. What is her economic cost of a year in​ college?

Answer 1

The economic cost calculation consists of the aggregation between the accounting cost and the opportunity cost.

The accounting cost is the sum of the direct expenses that an activity provides. In this case, it is the tuition, subsistence, and book expenses that total $ 10,000 + $ 4000 + $ 800 = $ 14,800.

Opportunity cost is a microeconomic concept used to describe how much an economic agent fails to earn in one economic activity by employing money in another economic activity. In this case, the opportunity cost is all that Jane could have gained from working as an accountant instead of studying. In that case it would be $ 20,000

Thus, the economic cost will be the accounting cost + opportunity cost: $ 14,800 + $ 20,000 = $ 34,800