Sunk costs occur when someone cannot recover money that has already been spent, according to the Organisation for Economic Co-operation and Development. This means that if a person buys a non-refundable plane ticket, the $500 spent makes it more likely that he or she will actually go on the trip. Sunk costs can be problematic because people can get attached to a plan even if it is no longer efficient or profitable. A company that has invested thousands of dollars in a project will hesitate to abandon it, even if it will cost them more money in the long run to move forward.
Pareto efficiency exists only when no one person can be made better off without another person being made worse off, according to The Economist. This is considered perfect efficiency. In a society that has inefficiencies, one could potentially profit more without making another profit less. Vilfredo Pareto first proposed this idea in the early 20th century. Today, economists theorize about how societies can become more efficient, with the ultimate goal being that societies become Pareto efficient---no wasted money.
Utility represents the amount of satisfaction a person gets from doing an activity. Economists theorize that people act in their best interests and seek to maximize utility. Utility does not always reflect an increase in money for an individual. A person could find a great deal of utility in donating money, even if it means he or she has a net loss in profit. Some economists believe the desire to increase utility means the concept of altruism does not exist. Those who choose to donate money out of the goodness of their heart are actually gaining utility from the transaction.
Opportunity cost represents the activity that one chooses not to do, according to the Economics Library. If a person chooses to go to class, their opportunity cost could be staying at home and sleeping. Opportunity cost comes most into play when people attend college. Some justify loans they take out to get a degree by thinking they will get a higher paying job after college is over. The loan is not the only cost associated with college, however. Students also pass up the opportunity to earn a full-time income while attending classes.
A comparative advantage occurs when one society can produce a good for less money than another society because of resources available, according to Green Facts. The theory of comparative advantage is used to justify international trade. Suppose country A can make shoes better than country B, while country B can make shirts better than country A. It makes more sense for country A to invest its resources in producing shoes and country B to invest its resources in making shirts. This way the two countries can trade instead of investing time and money in training workers to produce a good they aren't very good at producing. Comparative advantages can save countries money and make production more efficient. However, it can also mean relying on other countries to produce goods while some workers in the home country are jobless.