Topic 1, Lesson 2 Economics

What does every decision involve?

trade off

What do you think the word alternative means? How does it relate to opportunity cost?

Alternative means "choice." Opportunity cost refers to the next best choice, or alternative, in a decision. The opportunity cost is the most desirable choice, or alternative, given up.

Identify Cause and Effect Why does every decision involve a trade-off?

Every decision involves a trade-off because resources are limited (scarcity).

Trade-off

Giving up one thing for another

Consider what the word margin means. Then, explain in your own words what it means to "think at the margin."

Possible answer: Margin means "edge," or "limit."Thinking at the Margin explores the limits of adding a unit while still gaining a benefit.

Use your own words to describe the trade-off known as "guns or butter."

The government is responsible for the safety and well being of citizens. Because of limited resources, or scarcity, governments must decide how many resources to devote to security (guns) and how many to domestic needs (butter). Applying more resources to one means applying fewer to the other.

opportunity cost

The most desirable alternative given up as a factory or a store.

What are the two main parts of a cost/benefit analysis? How are they used to make a decision?

The two main parts of a cost/benefit analysis are marginal cost of adding a unit and marginal benefit of adding a unit. When marginal costs become greater than marginal benefits, it is no longer profitable to add another unit.

guns or butter

a phrase that refers to the trade-off that nations face when choosing whether to produce more or less military or consumer goods

marginal benefit

the extra benefit of adding one unit

marginal cost

the extra cost of adding one unit

thinking at the margin-

the process of deciding how much more or less to do