Question

How does the knowledge of implicit costs and explicit costs improve the resource allocation in the economy? Give examples?

Answer 1

When the economy is trying to allocate the resources for the purpose of handling costs then its important that the entire costs of the economy must be evident.

Because due to the prevailing shadow economy in a country quite frequently the cost either gets overstated or understated. So for correct and accurate allocation, its necessary that these evidences should be present.

The implicit are the hidden costs, and explicit are the evident costs.

Answer 2

The implicit costs help manager to calculate the overall economic profit. While the explicit costs calculate the economic profit plus accounting profit.

Explanation:

• The implicit cost is the cost which is already occurred but is not shown or reported. It shows the opportunity cost that arises when a company uses internal resources.  

• This cost exists without the exchange of cash and is not recorded in accounting cycles. Implicit cost represents a loss of income.  

• An example of this cost includes the small business owner who may leave salary in the early stage to achieve profit at the end.

• The explicit cost refers to the direct payment that is made at the time of running the business. An example may include the pension contribution and other perks that take into consideration the costs of labor.

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• brainly.in/question/6093140 answered by mahakincsem.