Explicit costs are the actual out-of-pocket expenses incurred by a business or individual in the production of goods or services. These costs are easily quantifiable and recorded in the accounting records. They include expenses such as wages, rent, utilities, raw materials, and taxes.

External owners of factors of production, such as labor, capital, and land, provide these inputs to the business in exchange for payment. Therefore, explicit costs are paid to external owners of factors. Let's understand this in detail.

- External owners of factors:
- Labor: The wages paid to employees for their work are considered explicit costs. These wages are paid to external individuals who provide their labor services to the business.
- Capital: If a business rents or leases capital assets, such as machinery or equipment, the rental or lease payments are explicit costs. These payments are made to external owners of capital who provide the assets to the business.
- Land: The rent or lease payments made for the use of land are also considered explicit costs. These payments are made to external owners of land who allow the business to use their property for production purposes.

- Tax authorities:
- While taxes are indeed an expense for a business, they are not considered explicit costs. Taxes are typically levied by the government and are paid directly to the tax authorities. They do not involve the payment to external owners of factors of production.

- Internal owners of factors:
- Internal owners of factors refer to the owners of the business themselves. For example, if a business owner provides their own labor or capital to the business, the corresponding costs would be considered implicit costs rather than explicit costs. Implicit costs are not recorded in the accounting records and do not involve payments to external owners of factors.

- Government:
- The government does not receive explicit costs directly. Instead, the government collects various taxes from businesses and individuals, including income tax, sales tax, and property tax. These taxes are paid to the tax authorities and not directly to the government.

In summary, explicit costs are paid to external owners of factors of production, such as labor, capital, and land. They represent the actual out-of-pocket expenses incurred by a business in the production process.