Marginal cost then is the additional cost to you over

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Marginal cost , then, is the additional cost to you over and above the costs you have already incurred. Marginal benefit is the additional benefit above and beyond what you’ve already accrued. Marginal analysis --Systematic comparison of the marginal (extra) benefits (MB) and the marginal (extra) cost (MC) of any choice Choose action only if MB > MC Don’t choose if MB < MC Principle 4: People Respond to Incentives People are motivated by incentives (i.e. anything that rewards certain behavior) Definition of incentive: something that induces a person to act. Because rational people make decisions by weighing costs and benefits, their decisions may change in response to incentives. When the price of a good rises, consumers will buy less of it because its cost has risen. When the price of a good rises, producers will allocate more resources to the production of the good because the benefit from producing the good has risen. Module 1.2 - How People Interact Principle 5: Trade Can Make Everyone Better Off Trade is not like a sports competition, where one side gains and the other side loses. Consider trade that takes place inside your home. Your family is likely to be involved in trade with other families on a daily basis. Most families do not build their own homes, make their own clothes, or grow their own food. Countries benefit from trading with one another as well. Trade allows for specialization in products that countries (or families) can do best.
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Principle 6: Markets Are Usually a Good Way to Organize Economic Activity Many countries that once had centrally planned economies have abandoned this system and are trying to develop market economies. Definition of market economy: an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services. Market prices reflect both the value of a product to consumers and the cost of the resources used to produce it. When a government interferes in a market and restricts price from adjusting, household and firm decisions are not based on the proper information. Thus, these decisions may be inefficient. Centrally planned economies have failed because they did not allow the market to work. FYI: Adam Smith and the Invisible Hand Adam Smith's 1776 work suggested that although individuals are motivated by self-interest, an invisible hand guides this self-interest into promoting society's economic well-being. Smith described "The Invisible Hand of a Market Economy". He said the " invisible hand " determines what gets produced, how it is produced, and for whom it is produced for . Market Mechanism – The use of market prices and sales to signal desired outputs ( WHAT or resource allocations). The essential feature of the market mechanism is the price signal. The market mechanism can also answer the HOW and FOR WHOM questions. To maximize their profits, producers will seek to use the lowest-cost method of producing a good.
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