SS 141 Chapter Notes - Chapter 2: Budget Constraint, Allocative Efficiency, Marginal Utility
Document Summary
How individuals make choices based on their budget constraints. Sometimes it is hard to capture the true opportunity cost if the problem contains large costs. Marginal analysis-comparing benefits and costs of choosing a little more or less of a certain good. **budget constraint helps people make choices when there is scarcity and use marginal analysis to think about what they prefer more or less of** Sunk costs-past opportunity costs (gone) that you can not salvage and are extraneous to future decisions. Society has finite resources and that affects decisions and quantities of goods and services. Budget constraint=straight line slope (prices of two goods) Ppf=curved shape (law of diminishing returns and no specific numbers because you don"t know exactly the number of lack of resources you are dealing with) Law of diminishing returns-as you add additional resources to producing a good or service, the marginal benefit from those additional things decrease.
