Cost of resources

Definition

The cost of resources refers to the price a producer pays for the inputs used to produce a good or service. It includes expenses like labor wages, raw materials, and energy costs.

Analogy

Think of the cost of resources as the ingredients needed to bake a cake. If the prices of flour, sugar, and eggs go up, it becomes more expensive for the baker to make cakes.

Related terms

Opportunity cost: The value of the next best alternative that is foregone when making a decision. For example, if a farmer decides to use their land for growing corn instead of soybeans, the opportunity cost is the potential profit from growing soybeans.

Input prices: The prices paid for resources used in production. Examples include wages for workers or prices for raw materials like steel or oil.

Production costs: The total expenses incurred in producing goods or services. It includes both fixed costs (e.g., rent) and variable costs (e.g., labor).