Sunk costs

Now lets talk about another factor in economics that we call sunk costs. These are costs that cannot be recovered once incurred. It is important to know that we shouldn't take them in consideration when we are making our decision.

For example a car. If we buy a car for lets say 1000$ (lets just say it's from FIAT), then we will be able to resell it, but at a much lower price (eg 500$). This means that the difference of 500$ are sunk costs. If we are considering buying that car, we shouldn't take in consideration that we will "loose" 500$ if we want to resell it in the future.

A good example and even a definition of these sunk costs is the so called "concorde fallacy". This refers to the fact that the French and British governement once continuted to fund an aircraft, that needed so much fuel, that even when no seats where left empty, it still wasn't economic. The price for the fuel was higher than they got back from the passengers for the tickets. But because the government thought it would be a commercial disaster to stop their flagship, they continued to fund it anyway.