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Questions and Answers
What is the definition of trade-off?
What is the definition of trade-off?
- the process of deciding whether to do or use one additional unit of some resource
- the idea that a country that decides to produce more military goods has fewer resources to produce consumer goods
- the most desirable alternative given up as the result of a decision
- the act of giving up one benefit in order to gain another, greater benefit (correct)
What does the phrase 'guns or butter' refer to?
What does the phrase 'guns or butter' refer to?
the idea that a country that decides to produce more military goods has fewer resources to produce consumer goods and vice versa
What is opportunity cost?
What is opportunity cost?
the most desirable alternative given up as the result of a decision
What does thinking at the margin mean?
What does thinking at the margin mean?
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What is cost/benefit analysis?
What is cost/benefit analysis?
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Marginal cost refers to the ______ of adding one unit.
Marginal cost refers to the ______ of adding one unit.
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Marginal benefit refers to the ______ of adding one unit.
Marginal benefit refers to the ______ of adding one unit.
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Study Notes
Opportunity Cost Concepts
- Trade-off: Refers to sacrificing one benefit to achieve a greater benefit, highlighting the essence of decision-making in resource allocation.
- Guns or Butter: Illustrates the balance a country must make between military production (guns) and consumer goods (butter), emphasizing resource scarcity.
- Opportunity Cost: Defined as the most desirable alternative foregone when a decision is made, crucial for evaluating choices.
Decision-Making Processes
- Thinking at the Margin: Involves evaluating whether to use or produce one additional unit of a resource, integral to optimizing outcomes.
- Cost/Benefit Analysis: A systematic approach where the trade-offs of actions are compared, focusing on what is sacrificed against potential gains.
Economic Measurements
- Marginal Cost: Represents the additional cost incurred when increasing production by one unit, fundamental for understanding cost dynamics.
- Marginal Benefit: The additional benefit received from producing or consuming one more unit, critical for assessing the value of incremental changes.
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