MAKING ECONOMIC DECISIONS

1
MAKING ECONOMIC DECISIONS
2
MAKING ECONOMIC DECISIONS

• Making economic decisions is simple. You are
  probably making economic decisions every day and
  you are not even aware of it.

3
MAKING ECONOMIC DECISIONS

• Scarcity forces people to choose how they will
  use their resources.
• Making economic decisions requires that we
  consider all the cost and benefits before we make
  a purchase.
• Making economic decisions also requires that
  people exchange one thing for another
  (trade-off).

4
MAKING ECONOMIC DECISIONS

• A trade off is the alternative you face if you do
  one thing over another.
• If a country wants to do something like put more
  money into education, then it must trade-off by
  putting less money into something else like
  building hospitals.
• Nations and businesses are forced to make
  trade-offs every day. Can you think of some on
  your own?

5
OPPORTUNITY COST

• Opportunity cost is the cost of the next best use
  of your time or money when you choose to do one
  thing rather than another.
• Opportunity cost involves more than just money.
  It also includes all of the discomforts and
  inconveniences that are linked to the choice
  made.
• Opportunity cost also includes the time you could
  be spending doing other things such as listening
  to music or visiting with your friends.

6
OTHER MEASURES OF COST

• Fixed cost are the expenses that are the same no
  matter how many units are being produced.
  Mortgage payments or property taxes are two
  examples.
• Variable cost are expenses that change with the
  number of products being produced.
• Total cost is determined by combining fixed cost
  and total cost.

7
OTHER MEASURES OF COST

• Marginal cost is the cost of producing one
  additional unit of output.
• Marginal revenue is the additional revenue
  received from producing one additional unit of
  output.
• Marginal benefit is the additional benefit gained
  from producing one or more units of output.

8
COST-BENEFIT ANALYSIS

• A cost benefit analysis is done to determine
  how well, or how poorly, a planned action will
  turn out. Although a cost benefit analysis can be
  used for almost anything, it is most commonly
  done on financial questions. Since the cost
  benefit analysis relies on the addition of
  positive factors and the subtraction of negative
  ones to determine a net result, it is also known
  as running the numbers.

9
COST-BENEFIT ANALYSIS

• A cost benefit analysis finds, quantifies,
  and adds all the positive factors. These are the
  benefits. Then it identifies, quantifies, and
  subtracts all the negatives, the costs. The
  difference between the two indicates whether the
  planned action is advisable. The real trick to
  doing a cost benefit analysis well is making sure
  you include all the costs and all the benefits
  and properly quantify them.

10
Complete Ch. 18 Sec. 2 Assessment (1-7)