User cost

Updated: Aug 20, 2021

1. The cost involved in using a unit of capital, which can be thought of as the fall in its value which results from its use. For example, suppose that a machine could be sold now for a maximum of £100. If it is instead used to produce some output and the result of this is to reduce the price at which it can be sold to £90, the user cost is £10. The concept of user cost is clearly closely related to depreciation, where the latter term is used in the economic, rather than the accounting, sense of the word. 2. A term used in cost-benefit analysis and defined here as the total costs incurred by users in their use of a particular facility. These costs include social costs as well as private costs. For instance, in carrying out an investment appraisal of capital expenditure on a road, the alternative costs to the traffic using the road and its alternatives are evaluated. These costs not only include the costs of petro! and wear and tear of vehicles, but also the time taken in travelling along the alternative routes.

Reference: The Penguin Dictionary of Economics, 3rd edt.

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James Knight
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James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.