Chapter 1 - How Much? is a Decision at the Margin You make...

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“How Much?” is a Decision at the Margin You make a trade-off when you compare the costs with the benefits of doing something Decisions about whether to do a bit more or a bit less of an activity are marginal decisions Marginal Analysis Making trade-offs at the margin: comparing the costs and benefits of doing a little bit more of an activity versus doing a little bit less The study of such decisions is known as marginal analysis o Ex: Hiring one more worker, studying one more hour, eating one more cookie, buying one more CD, etc. People Usually Take Advantage of Opportunities to Make Themselves Better Off An incentive is anything that offers rewards to people who change their behavior Interaction: How Economies Work Interaction of choices- my choices affect your choices, and vice versa- is a feature of most economic situations Principles that underlie the interaction of individual choices: o There are gains from trade o Markets move toward equilibrium o
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Chapter 1 - How Much? is a Decision at the Margin You make...

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