Master Card has a series of cute commercials that list a series of accounting it
ID: 1252462 • Letter: M
Question
Master Card has a series of cute commercials that list a series of accounting items and costs leading to a priceless product. Cell phones are often advertised as being free. In economics, it is said that nothing of value is either free or priceless, everything has a price. Take something from your experience, that is allegedly free or priceless and use the concepts of accounting costs, economic costs, explicit costs, implicit costs, opportunity costs and sunk costs to explain why it is neither priceless nor freeExplanation / Answer
A new born baby is considered to be free and priceless, however, the following costs incurred show why it isn’t free or priceless:
Accounting cost: Tax returns will be required to be filled out for the new person for 80 years.
Economic cost: Cost of federal and state schooling for him.
Explicit cost: Cost of food, clothing and shelter for the child.
Implicit cost: The time that mother spent bearing and nourishing the baby could be used to work for earnings.
Opportunity cost: Different lifestyle and purchasing decisions a parent would make if there was no child. Say, a 2 seat sports car instead of a family car or minivan.
Sunk cost: Medical expenses for having the baby can never be recovered.