Economic Decision Making -Scarcity and Choice. Opportunity Costs Marginal Analysis Production Possibilities. An economic decision involves making a choice of how to allocate (“divide-up”) limited or scarce resources. The fundamental building blocks of economic decision-making:
(i) Opportunity Cost
(ii) Marginal Cost-Benefit Analysis
- Job Offers and Salaries
- Natural Resource Depletion
- Time Value of Money
(i) the rate by which a bank account grows over time.
(ii) the price borrowers pay lenders for a loan.
(iii) the opportunity cost of holding cash rather than depositing it into a bank account.
Total Time Available = 4 hours
Activities: Studying or Leisure (partying)
Benefit of Leisure (0 to 10)
Cost of Lower Grade (0 to 10)
Net Happiness = Benefit - Cost
(i) Points inside or along PPF are feasible.
(ii) Points outside PPF are unattainable.
(iii) Points along PPF are efficient.
(2) Usually bowed-out – the principle of increasing opportunity costs.
(i) Growth in resources (inputs).
(ii) Technological progress/human capital.