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Critical Analysis of Economic Principles and Their Impact on Decision-Making and Trade

Examination of fundamental economic theories and applications

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    Critical Analysis of Economic Principles and Their Impact on Decision - Making and Trade Michelle Gordon BUAD 641 Week 2 Critical Thinking 1. How do marginal benefits and marginal costs influence consumer decision - making and the efficient level of production? If we are economists we want to look at marginal benefits and marginal costs to help us to see why consumers buy what they buy . When people make decisions they look at the additional cost and benefit of the decision. The cost or benefit of that decision is called the marginal cost or the marginal benefit. If consumers are making rational decisions and i f two products are of equal benefit to a consumer, then he or she will choose the cheaper product. However, i f two products are the same price, the consumer will choose the one that provides the higher benefit. P eople who have a certain income s will also have to make a choose based on how much money they have. Economists believe that consumers mak e decisions based on should one more unit of the good be obtained or not? Marginal benefit refers to what people are willing to give up in order to obtain one more unit of a good, while marginal cost refers to the value of what is given up in order to produce that additional unit. Additional units of a good should be produced as long as marginal benefit exceeds the marginal cost. It would be inefficient to produce goods when the

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    marginal benefit is less than the marginal cost. So there is an efficient level of production when marginal benefit is equal to marginal cost. 2. How do externalities, such as pollution, affect decision - making for both companies and consumers, and how can marginal analysis be used to address these issues? Externalities are consequences that happen to a third party. It can be positive or negative. Pollution that happens from a factory that goes into the surrounding environment can cause harm to the health of the people who live by. This is why it is so important for the politicians to make decisions based on a marginal analysis that has been done about pollution and the affect it has on our economy. The first unit of pollution that is cleaned up has a very high benefit value to consumers. Each additional unit is valued at a lower level than the previous one because the pollution level continues Even though people who live next to a factory may be concerned with making the pollution less the company might not want to lower the pollution if the costs of minimizing pollution is bigger than the benefits that the factory receives. The factory can measure it's marginal revenue against the marginal cost of the new technology that they must have. if the marginal revenue is higher than the marginal cost than they will consider making changes to lower the pollution. Another example that I have experienced is the Obama Healthcare. I don't think they really analyzed this policy and say what problems it has caused to a bunch of Americans who have to rely on Obama Healthcare . I have Ob ama Healthcare and I have had nothing but problems with it . I try to go to the obgyn to get a simple pap smear and I have to jump through so many hoops. It is so disorganized and has taken me over a month just to go to the doctor what if I really had something wrong with me I could die by the time I get to

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