Untitled Slide

Trade-Offs

• Trade-offs are all the alternatives given up when one decision is made over another.
• Trade-offs affect individuals, businesses, and society as a whole.
• Ex: Babysitting prevents you from going to your friends party.

OPPORTUNITY COST

• Opportunity cost is when the more desirable alternative is rejected due to a decision.
• Ex: If you choose to buy a motorcycle over saving up, then saving up is the opportunity cost of buying the motorcycle.

THINKING AT MARGIN

• Thinking at the margin is when one decides how much more or less to do.
• To make a decision at the margin one must compare opportunity costs to benefits.

THINKING AT MARGIN

• Ex:
• One hour overtime leads to $20 extra and an opportunity cost of one hour of free time.
• Two hours overtime leads to $40 extra and an opportunity cost of two hours of free time.