Economics Ch.1 Sect.2

Employers think at the margin when they decide ...

how many workers to hire

Legislatures think at the margin when they decide..

how much to increase government spending on a particular project.

the extra benefit of adding a unit

marginal benefit

the extra cost of adding a unit

marginal cost

Once the marginal costs outweigh the marginal benefit....

no more units can be added

making a decision at the margin is possible only in situations where..

the available alternatives can be divided into increments

Why does every choice involve an opportunity cost?

we always face an opportunity cost. When we select one alternative, we must sacrifice another

to make a good decision on the margin, you must...

weigh marginal cost against marginal benefits

A phrase expressing the idea that a country decides to produce more military goods ("guns") has fewer resources to produce consumer goods ("butter") and vice versa

"Guns or Butter"

How does opportunity cost affect decision making?

-Every time we choose to do something, like sleep in late, we are given up the opportunity to do something less, like study an extra hour for a big test. -When we make decisions about how to spend our scarce resources, like money or time, we are giving up the chance to spend that money or time on something else.

Why does every choice involve an opportunity cost?

-We always face an opportunity cost. -When we select one alternative, we must sacrifice another.

___________________ also make trade-offs when they decide to spend their money on military needs instead of domestic ones, and vice versa.

Governments

_________________ involve things that can be easily measured such as money, property, and time or things that cannot be easily measured, like enjoyment or job satisfaction.

Trade-offs

Thinking at the margin also applies to

businesses and governments

a decision making process in which you compare what you will sacrifice and gain from a specific action

cost/benefit analysis

Using a __________________ _______ can help you decide if you are willing to accept the opportunity cost of a choice you are about to make.

decision-making grid

a decision is made at the margin when..

each alternative considers cost and benefit ranked in progressive units

Businesses make trade-offs when they decide how to use their _____________ ____ ________________________.

factors of production

an increase or addition especially on a fixed scale

increments

Ex: If squash was the most profitable alternative to broccoli, then the ___________________ _________of deciding to plant broccoli was the chance to plant squash.

opportunity cost

The most desirable alternative given up as the result of a decision.

opportunity cost

happening or developing gradually or in stages, proceeding step by step

progressive

deciding by thinking on the margin involves comparing...

the opportunity costs and benefits

What is a cost/benefit analysis?

thinking on the maragin

The process of deciding how much more or less to do

thinking on the margin

The alternatives that we give up when we choose one course of action over another.

trade-off

All individuals, businesses, and large groups of people make decisions that involve _______________.

trade-offs

Every decision involves _______________ because resources are limited.

trade-offs

In most _______________, one of the rejected alternatives is more desirable than the rest.

trade-offs

Using a decision-making grid can help you decide if you are..

willing to accept the opportunity cost of a choice you are about to make