Making Economic Decisions 18.2

Scarcity and the Choice Societies Make Limited Resources Unlimited Wants Scarcity Not enough resources to produce everything you want or need Choices ALL Societies Make For Whom to produce What to produce How much to produce

Trade-offs Deciding to choose to do one thing over another

Opportunity Cost The cost of the next best use of your time or money when you choose to do one thing rather than another. The cost (consequence) of choosing one thing over another

What will it cost you? If you choose to ride a bike instead of take a car.

Costs of doing business…

Fixed Cost Costs or expenses that are the SAME no matter how many units of a good are produced. Examples: mortgage payment, car payment, or property taxes

Variable Cost Expense that changes with the number of units produced Example: wages or raw materials

Total Cost Fixed cost + variable cost= total cost

Making informed decisions Use a cost-benefit analysis to make a good decision!

(Marginal) Cost The disadvantage or negative of a decision What if?

(Marginal) Benefit The satisfaction or advantage of a decision. Why is it a good idea?

Cost-Benefit Analysis Compare benefit (advantages) to cost (disadvantages) Is it worth it to do it? Is it too costly?