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Terms in this set (8)
Rule of Force
One of the most important functions of government is to outlaw the rule of force so that it can be replaced by better rules (although competition through force remains common between governments in the form of wars). Reliance on the rule of force is costly to society because it motivates destructive competition and discourages productive competition.
First Come First- Served
This rule causes people to compete by waiting in line, with the competition favoring those who get in line first and wait the longest. Unless fighting breaks out as some people start cutting in line (which is a violation of the rule) first come-first served does not motivate destructive competition, but neither does it motivate productive cooperation that helps everyone. Waiting in line does nothing to get people to work together to produce more of what people are waiting for, or more of anything else of value.
A more common way of allocating scarce goods is by having the government distribute them. A government often tries to allocate resources by redistributing them
Market competition does, however, allow people to get more of what they want by helping others get more of what they want. The result is that scarce resources are not merely allocated, but allocated in ways that push back the limits of scarcity by increasing the value of what is produced. Also, even when markets are capable of working well, we need some involvement on the part of government—not to allocate products directly, but to enforce the rules that are necessary for markets to work properly.
Effective decision making
Effective decision making requires comparing the additional (marginal) costs of the alternatives with the additional (marginal) benefits. Most choices involve doing a little more or a little less of something; few choices are all or nothing decisions. Furthermore, people respond predictably to positive and negative incentives.
To make decisions that provide the greatest possible return from the resources available, people and organizations must weigh the benefits and costs of using their resources to do a little more of some things and little less of others.
Trade-offs are all of the other options that are given up when one entity or individual makes one choice over another.
is the cost of what you give up when you make an economic decision. It is usually the most attractive option that is given up because one choice was made over another.
Trade-Off vs. Opportunity Cost
A trade-off is the alternative (or alternatives) given up when someone makes a choice between several alternatives. An opportunity cost is the best option given up as the result of making a choice.
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