True Cost Economics

DEFINITION of 'True Cost Economics'

An economic model that seeks to include the cost of negative externalities into the pricing of goods and services. Supporters of this type of economic system feel products and activities that directly or indirectly cause harmful consequences to living beings and/or the environment should be accordingly taxed to reflect the somewhat hidden costs.

BREAKING DOWN 'True Cost Economics'

This school of thought is on the rise as a result of the perceived need for ethical consideration in neoclassical economic theory. However, the cost of many goods and services that are currently affordable, and often taken for granted, could see an extreme rise in costs if their "true costs" are accounted for.

For example, if one accounted for air, noise and other types of pollution caused by the manufacturing and the use of a new car, then the price of the new car would, by estimates, raise by over $40,000.

RELATED TERMS
  1. Cost Accounting

    A type of accounting process that aims to capture a company's ...
  2. Activity-Based Costing - ABC

    An accounting method that identifies the activities that a firm ...
  3. Cost Of Carry

    Costs incurred as a result of an investment position. These costs ...
  4. Externality

    A consequence of an economic activity that is experienced by ...
  5. Marginal Social Cost - MSC

    The total cost to society as a whole for producing one further ...
  6. Activity Cost Driver

    A factor that influences or contributes to the expense of certain ...
Related Articles
  1. Economics

    Understanding Externality

    An externality is a consequence of an economic activity that is experienced by unrelated third parties.
  2. Taxes

    What's an Indirect Tax?

    An indirect tax is levied on goods or services rather than on an individual or a company.
  3. Investing

    What are Direct Costs?

    Direct costs for finished goods refer to the items and services directly used in production. Other costs such as rent and insurance for the production site are indirect costs. These costs may ...
  4. Investing

    What is Absorption Costing?

    Absorption costing is an accounting method primarily used in manufacturing. In absorption costing, the cost of a manufactured product includes the direct costs plus an apportioned share of the ...
  5. Budgeting

    Revealing The Hidden Costs Of Weddings

    Find out how to avoid paying more for your big day!
  6. Investing

    Examining Costs Of Goods Sold (COGS)

    Learn more about the costs that go into production.
  7. Economics

    Calculating Economic Profit

    Economic profit is the difference between the revenue a firm earns from sales and the firm’s total opportunity costs.
  8. Personal Finance

    The Role Of Opportunity Cost In Financial Decision Making

    Opportunity cost is an essential, often overlooked aspect of financial decision making.
  9. Personal Finance

    How the Cost of Living Affects Your Income

    Do you know all the ways cost of living increases can affect your income?
  10. Economics

    Is Infinite Economic Growth on a Finite Planet Possible?

    While the finite nature of Earth's resources limits the direction of economic growth, it does not mean that infinite economic growth is impossible.
RELATED FAQS
  1. What are the differences between period costs and product costs?

    Find out why GAAP separates all company expenses into either period or production costs and how this impacts the way expenses ... Read Answer >>
  2. What are some common financial instruments involved in speculation?

    Understand why a company does not need to allocate direct costs. Learn what types of costs need to be allocated to represent ... Read Answer >>
  3. What is the difference between the cost of living and the cost of inflation?

    Increases in the general price level is called inflation, whereas cost of living is an estimate of the cost of an average ... Read Answer >>
  4. What is the difference between direct costs and variable costs?

    Learn about variable costs and direct costs, how direct costs and variable costs are classified and the differences between ... Read Answer >>
  5. How is the cost of living index calculated?

    Discover how calculations for cost of living indexes are made based on the average prices of common goods and services between ... Read Answer >>
  6. What's the difference between cost of goods sold (COGS) and cost of sales?

    Explore the difference between the cost of goods sold and cost of sales listed on an income statement, and what types of ... Read Answer >>
Hot Definitions
  1. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  2. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  3. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  4. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  5. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  6. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
Trading Center