Making Economic Decisions Economics Pt. 1, Lesson 2

Trade-Offs Scarcity forces people to make choices about how they will use their resources Every economic decision involves a trade-off Opportunity cost: the cost of the next best use of your time or money when you choose to do one thing rather than another Opportunity cost includes more than just money; includes time or opportunities What is the opportunity cost of playing for the basketball team?

Measures of Cost Fixed costs: expenses that are the same no matter how many units of a good are produced; examples? Variable costs: expenses that change with the number of products produced; examples? Total costs: fixed costs + variable costs

Revenue and Benefit Total Revenue: number of units sold multiplied by the average price per unit Marginal Revenue: the additional revenue from selling another unit of output Example: Pizza Hut makes $5 for every pizza they sell, how much do they make selling a second or third pizza? Marginal Benefit: additional extra benefit associated with an action Example: you pay $10 for a burger, how much would you pay for a second? third? Cost Benefit Analysis: deciding when the benefits are greater than the costs; what can cause the costs to be greater than the benefit