FOCUS: MARGINAL THINKING DO NOW: In your notebook, define margin marginal cost marginal benefit utility marginal utility diminishing marginal utility

TERMS: Utility: the ability of a good or service to SATIFY a need/want = satisfaction Marginal: “one more unit” of something; the difference between two things Marginal analysis: what’ll happen if I produce or consume one more unit Marginal cost – the cost of producing or consuming one more Marginal benefit – the benefit of producing or consuming one more

REVIEW: 4 Key Economic Assumptions People are RATIONAL. People are GREEDY (wants = unlimited). People act in their own SELF- INTEREST. RESOURCES are SCARCE.

COST-BENEFIT ANALYSIS: Making a list of the PROS & CONS of a decision Weighing the COSTS against the BENEFITS

OPTIMIZATION: GOAL –Maximize BENEFIT –Minimize COST Requires OPTIMAL (most efficient) ALLOCATION of resources Examines TRADE-OFFS

UTILITY & SUPPLY and DEMAND: DEMAND SIDE – the “buy” side” Law of Diminishing Marginal Utility SUPPLY SIDE – the “sell side” Law of Diminishing Marginal Returns

TERMS: Utility: the ability of a good or service to SATIFY a need/want = satisfaction Marginal: “one more unit” of something; the difference between two things Marginal analysis: what’ll happen if I produce or consume one more unit Marginal cost – the cost of producing or consuming one more Marginal benefit – the benefit of producing or consuming one more

THE LAW OF DIMINISHING MARGINAL UTILITY UTILITY – the amount of SATIFACTION you get out of consuming another unit of something THE LAW OF DIMINISHING MARGINAL UTILITY - each additional unit provides less UTILITY or SATISFACTION