What is the formula to calculate book value in economics?

The correct approach to calculate book value in economics is derived from the principles of asset depreciation. When assessing the book value of an asset, one typically starts with the initial cost of the asset and adjusts for the total depreciation that has occurred over time.

Option D expresses this by stating that the book value is determined by the initial cost minus the sum of each year's depreciation. This method correctly accounts for the annual depreciation that reflects the asset's reduction in value over its useful life.

To elaborate, depreciation is a systematic allocation of the cost of a tangible asset over its useful life. As each year passes and depreciation is recorded, the book value of the asset is adjusted downwards, thereby giving a more accurate reflection of its current worth on the books of the company.

Other choices do not accurately represent the calculation for book value. For example, adding total depreciation (as suggested in one of the options) does not appropriately reflect the decrease in an asset's value, hence it would not yield the correct book value.