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Economics: The Power of Economics

Writer's picture: Andrew HawkinsAndrew Hawkins

Every day, we encounter economic choices or, in essence, trade-offs. Trade-offs are defined as trading something in exchange for something else. There are two sides to the trade-off game—Marginal Benefits and Marginal Costs. Marginal benefits are benefits that result from the incentive of doing something. Marginal costs are the costs that result from doing the activity or paying for something.


For example, today, I bought three energy drinks, Pink Red Bull. I thought that I would like it because I like other flavors. So, I took the first sip, and it tasted like Cherry NyQuil. It was awful. So, I had a sunk cost because my investment was in the Pink Red Bull flavor. So, in essence, I found a marginal benefit. This marginal benefit was to give the Pink Red Bull to my coworkers at work. I did not do much advertising. I told them, "I did not like the taste of the Red Bull. Would you like to try this?" So, the person I gave it to had minimal opportunity cost associated with me handing the Red Bull to him. So, in essence, the marginal benefit of giving it out to some of my coworkers far outweighed the marginal cost of throwing it away. But after I did this, I realized that I could have returned the two other Red Bulls and got my money back. However, I am glad that my generous heart and attitude helped other coworkers try the Pink Red Bull. Anyway, this is an example of a tradeoff and how to use marginal costs and benefits.


This is my short article on the concept of tradeoffs and how they impact everyday economic decisions. People always choose the best option for themselves, even at the expense of other people, as in the Red Bull example.

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