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Compare A Necessity And Commodity Product, Identifying The Availability Of Sbstitutions For Coffe

758 words - 4 pages

How People Make Economic Decisions
Juan D. Agramonte
ECO/212 Principles of Economics
August 4, 2010
Instructor: Robert Waremburg

How People Make Economic Decisions
Marginal costs and benefits are two important concepts that govern economics. Marginal cost is important in determining the need to adjust the rate of production. Whereas, marginal benefits are considered as the gain that will be earned if the rate of production will be adjusted.
However, both marginal costs and benefits are not mere economic concepts; they are also prevalent in the practical activities of producers and consumers. They play an important role in the decision making of the people. Naturally, the ...view middle of the document...

Third principle is “rational people decide marginally.” To elaborate, people will only take a chance on something if they realize that the marginal benefits are more than the marginal costs. Lastly, the fourth principle states that “incentives are important in people’s decisions”. Since benefits and costs are always considered, then the changes in either the benefits or costs will also affect the decisions of the people. Incentives make something more compelling.
Investopedia (2010) defines marginal cost as the opportunity cost that can be acquired by simply producing another item or good from the planned production. The best example to illustrate this is the shirt printing. If a company decides to print 15 instead of 14 dresses, 14 dresses cost $140, and 15 dresses cost $150. Thus, a $10 for an extra dress represents the marginal cost of printing. The more items are produced, the price also directly increases.
On the other hand, marginal benefit is the prices that people are willing to give in order to acquire another item. For instance, the money that they are willing to spend just to produce another shirt. Marginal cost, therefore, is the price or value lost to produce the extra dress. But as long as the marginal benefits offset the marginal...

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