1. Chapter 1 Section 2

2. When we decide on one alternative, we gain one thing but lose something else.
Economists point out that all individuals, businesses, and large groups of people-even governments—make decisions that involve
trade offs.

3. Trade-offs- any alternative that we sacrifice when we make a decision.
Every decision we make involves trade-offs.

4. The decisions that business people make about how to use land, labor, and capital resources also create
trade-offs. Farmers who plant broccoli cannot use the same land at the same
time to grow cauliflower.

5. Countries also make decisions that involve trade-offs
Countries also make decisions that involve trade-offs. Economists simplify their explanations of the trade-offs countries face by using the example of guns and butter.

6. A country that decides to produce more military goods (“guns”) has fewer resources to devote to consumer goods (“butter”) and vice versa. (Remember, resources are limited!)

7. Guns or Butter Principle- a phrase that refers to the trade-offs that nations face when choosing whether to produce more or less military or consumer goods.

8. Whenever individuals, businesses, or governments decide on a course of action, they face many trade-offs. One alternative is usually more desirable than all the others.

9. The most desirable alternative given up as the result of a decision is called the Opportunity Cost.
Every ordinary decision that we make every day involves an opportunity cost.

10. Using a decision making grid can help you determine whether you are willing to accept the opportunity cost of a choice you are about to make.
Economists encourage us to consider the trade-offs and opportunity cost of a decision before we make it.

11. Thinking at the Margin!
Many decisions involve adding one unit or subtracting one unit, such as one minute or dollar.

12. Thinking at the margin-is deciding whether to do or use one additional unit of a resource.

13. When we select one alternative, we have to sacrifice at least one alternative and forgo its benefits.
By recognizing what we are sacrificing, we can decide whether the decision is worth it.
An economist might use the phrase “Choosing is refusing.”

14. What is a trade off?
An alternative that we sacrifice when we make a decision.

15. 2. Why must the opportunity cost of a decision always be something desirable.
Because you cant use the same money you used to buy the next best thing you wanted.

16. 3. How do economists use the phrase “guns or butter”?
A country decides to produce more military goods has fewer resources to devote to consumer goods.

17. 4. What does it mean to “think at the margin”?
Deciding whether to do or use one additional unit of some resource.

18. 5. Suppose that you can save $50 by buying your car in a different city. If the trip requires only $10 in gasoline, is the trip worthwhile? Why or why not?
Yes because your still saving $40.

19. 6. Why does an opportunity cost vary from situation to situation?
The desirable alternative can always differ.

20. 7. Explain, how people make decisions by thinking at the margin.
They think about how many additional units they want.

21. 8. What does guns and butter mean?
The trade-offs that nations face when choosing whether to produce more or less military or consumer goods.

22. 9. What are some trade-offs of buying a car?
The desirable things you want in your car.

23. 10. Which factors would an employer consider if they were trying to decide whether to hire an additional worker?
How well they work and how much money your willing to pay them.