Discounting in Economics

Discounting in economics is a way to determine the present value of future benefits or costs. Since money or value today is generally more useful or valuable than the same amount in the future—due to potential earning opportunities or inflation—discounting adjusts future cash flows to reflect their current worth. This helps in comparing investments or projects with different timelines. Essentially, it acknowledges that a dollar today is worth more than a dollar later, allowing for better decision-making by evaluating future benefits and costs in today's terms.