What is user cost?
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What is user cost?

In economics, the meaning of the term user cost is somewhat comparable to that of opportunity cost which is a benefit or value of a resource (such as land, time, money, etc.) to obtain or achieve something else. However, the definition of user cost differs from that of opportunity cost in that user cost is the reduction in value of a resource or asset due to its use.

The key difference between these two terms is that user cost refers to the use of goods or tangible assets that produce revenues which can be measured by money, while opportunity cost refers to the benefits or profits of such goods that may be given up, either through consumption or production, to achieve a goal or net revenue.

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Another key difference between user cost and opportunity cost is that user cost cannot occur if the item cannot be used or is idle, but opportunity cost is present in both situations.

An example of the user cost of a resource can be shown with water. If a hypothetical city has access to water only by means of a nearby lake, then members of the city may choose to consume a certain amount of water per day that would sustain the city's water needs for hundreds of years, or they may choose to consume an amount of water that would dry up the lake within 20 years.

The user cost of this example would be the amount of water members decide to consume per day since the consumption of such cannot be replaced or reproduced.
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