Thinking at the Margin! Does it have to be all or nothing?

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Presentation transcript:

Thinking at the Margin! Does it have to be all or nothing?

Recall Economics is all about making…. Choices/decisions What is a Trade-Off? A choice between two things What is Opportunity Cost The next BEST alternative you give up when making a decision

A little bit of this, A little bit of that Rational Decision Making – involves making SMART choices! Meaning weighing your costs and benefits as it pertains to the situation When making choices it doesn’t always have to be all or nothing. Thinking at the Margin – what choice allows me to give the least on both sides. Ex: You have the choice to go to the mall or stay at home and study for your test. Thinking at the Margin will allow you to do both – spend some of your time studying and some of your time at the mall! However, you need to make rational choices on allocating your time wisely.

How does thinking at the Margin Work? Marginal Benefit = what you GAIN from the decision Marginal Cost = what you LOSE from the decision When making a decision, an economists would say for you keep going until the costs outweigh the benefit. Back to the mall and studying scenario

Allocation What is allocation? Distribution of available resources – a plan on how the resources will be used Why might this cause a problem? Scarcity! All resources are LIMITED! TIME can be a resource Is time limited?

Marginal Benefit v. Marginal Cost Hours Spent Studying Hours Spent at the Mall Grade on your test Marginal BenefitMarginal Cost 5O You have five hours (4pm -9pm) available on Friday. You can either go to the mall with your friends or you can study for your economics test. If you do not make a good grade on the test, your mom will ground you from going anywhere but school for a month. Let’s use Thinking at the Margin to figure out your BEST option – the one that gives you the biggest benefit! START FROM THE BOTTOM EVERY TIME!!!!!!!!!

Marginal Benefit v. Marginal Cost Now let’s use the data to answer the following questions Which option gives you the greatest marginal benefit? At which point does the benefit decrease (cost outweighs the benefit)? What is the RATIONAL decision in this case? Hours Spent Studying Hours Spent at the Mall Grade on your test Marginal Benefit Marginal Cost 5O963pts gained1 hour shopping 41933pts gained1 hour shopping pts gained1 hour of shopping 23775pts gained1 hour of shopping 14723pts gained1 hour of shopping 0569_____________________