Making Economic Decisions
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Transcript of Making Economic Decisions
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Making Economic Decisions
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Three Basic QuestionsAn economy needs to answer three basic questions because of scarcity:
1.How to produce2.What to produce3.For Whom to produce
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Trade-offsThe alternative you face if you decide to do one
thing rather than another. Scarcity forces us to make choices!
When you face trade-offs, there is always an opportunity costDefinition = Highest valued alternativeExample: No Such Thing as a Free Lunch
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Other CostsFixed = are always the sameVariable = change with the # of products
Total = Fixed + Variable
Marginal cost= extra cost of each additional unit.
Marginal benefit= extra benefit of an action or decision.
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Making Economic Decisions: Cost-Benefit AnalysisComparing marginal cost and marginal benefit.
If we decide rationally, we should choose actions
where the benefits are greater than the costs.
Example: All You Can Eat Buffet/ Jedi Training at Disney World
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Packing for the trip of a lifetime
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Where are we going?
You guys get to decide!
You will be packing according to destination.
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Packing your suitcaseSince we are travelling by plane, the TSA will
only allow us to travel with 10 items, not including hygiene products (no STINKY passengers!)
What are you packing?
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Oh no!
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TSA has stopped you in Security!TSA has changed regulations and you can now
only take 5 items in your suitcase.
What are you leaving and what are you keeping?Make sure to think about the cost of leaving it behind vs. benefit of taking it.
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TSA has stopped you in Security!TSA has changed regulations and you can now
only take 5 items in your suitcase.
What are you leaving and what are you keeping?Make sure to think about the cost of leaving it behind vs. benefit of taking it.
![Page 12: Making Economic Decisions](https://reader035.fdocuments.us/reader035/viewer/2022081603/5681362c550346895d9da8db/html5/thumbnails/12.jpg)
Reflection QuestionsHow did you decide what to leave?
What is the opportunity cost of your last item you decided to keep?
How did you use cost benefit analysis?
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HLARead Chapter 17.3 Finish “Trip of a Lifetime” Reflection