Roll no.

18-ARID-5198
Class: BS(CS)6B
Submitted To. Madam Sidra Ayub

Quiz of Economics

Name: Muhammad Atta Ur

Rehman
Question No.1:
Differentiate between the following.                                       

1. Implicit and explicit cost.

Answer: implicit cost:

Implicit Cost also known as the economic cost it is the cost

which the company had foregone while employing the alternative course of action.
They do not involve any outflow of cash from the business. It is the value of
sacrifice made by the entity at the time of exercising some other action. The
cost occurs when an asset is used as a factor of production by the entity instead of
renting it out.

Explicit cost:

Explicit Costs are the costs which involve an immediate outlay of

cash from the business. The cost is incurred when any production process is going
on, or activity is conducted in the normal course of business. The cost is a charge
for the use of factors of production like land, labor, capital and so on. They are in
the form of rent, salary, material, wages, and other expenses like electricity,
stationery, postage & etc.

2. Market shortage and market surplus

Answer: Market shortage:

It occurs when there is excess demand that is quantity

demanded is greater than quantity supplied. In this situation consumers won’t be
able to buy as much of a good as they would like . in response to the demand of the
consumers producers will raise both the price of their product and the quantity they
are willing to supply.

Market surplus:

It occurs when there is excess in supply that is quantity supplied is

greater than quantity demanded. In this situation some producers won’t be able to
sell all their goods. This will induce them to lower their price to make their product
more appealing
 3. Economic profit and accounting profit
Answer: Economic profit:

Economic profit is similar to accounting profit, but it

includes opportunity costs.it includes explicit and implicit costs which are implied
or imputed costs.

Accounting profit:

Accounting profit the net income for a company which is

revenue minus expenses.it includes explicit costs such as raw materials and wages.