16633 Chapter Notes - Chapter 2: Comparative Advantage, Opportunity Cost, Marginalism
Document Summary
Because of scarcity, people must make choices, and each choice incurs a cost (sacrifice) known as opportunity cost. It is the best alternative sacrificed for a chosen alternative. It applies to personal, group and national decision-making and underpins all aspects of economics, as it is linked closely to scarcity. Opportunity cost increases as production of one output expands at the expense of another. This occurs because factors of production are generally not equally suited to producing one good, compared to another good. That is, opportunity costs rise as resources are shifted away from their best use. Marginal analysis examines the effects of additions to or subtractions from a current situation. It is a very valuable tool in economics because it considers the effects of change resulting from decision-making. Individuals, firms and governments all face marginal analysis. The e(cid:272)o(cid:374)o(cid:373)i(cid:272) pro(cid:271)le(cid:373) of s(cid:272)ar(cid:272)ity (cid:373)ea(cid:374)s that so(cid:272)iety"s (cid:272)apa(cid:272)ity to produ(cid:272)e (cid:272)o(cid:373)(cid:271)i(cid:374)atio(cid:374)s of goods is constrained by its limited resources.
