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It is important to study economics to learn the economic way of thinking that comprises critical and closely interrelated methods of using resources. Economists consider the world to be scarce in resources. The scarcity of…
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DQ1 Why is it important to study economics? Explain Economists view facts from a different perspective. It is important to study economics to learn the economic way of thinking that comprises critical and closely interrelated methods of using resources. Economists consider the world to be scarce in resources. The scarcity of economic resources means that there are limited goods and services in this world that demands choice and restricts options. Economics thus indicates that all resources cannot be used by a single user and requires a decision upon the user to chose certain resources and forgo certain others.
Consumers decide about the goods and services they prefer to purchase while the objective of business firms is to decide on how to produce products and the variety of products to be produced. Government entities aim to provide public services and decide on the methods to finance them. The behavior of these varying sections of the society may be termed as purposeful behavior in terms of managing resources and finance, though it may be noted that institutions and people are not free from faulty decision making because decisions are influenced by emotions and by people around the decision maker.
Economists consider the marginal analysis while decision making; a comparison of marginal costs and marginal benefits. In this context, marginal means additional, extra or a change in. For example, economists analyze whether a business should reduce or expand or whether the government should increase or decrease funds for a particular cause. A rational decision maker must compare both marginal costs and benefits while making a choice. Economics gives significance to scientific methods to observe consumption behaviors and outcomes and derives hypothesis (cause and effect), tests and modifies the hypotheses using facts and finally evolves it into economic theories or principles that predicts the outcomes of specific actions.
Therefore, it is important to study economics, because economics concerns with theories and methods that support facts about how institutions and individuals essentially behave in producing, consuming and exchanging goods and services and thereby find a logical balance while consuming the available resources in this world (McConnell 2005 p.4-6).
2. What is your understanding of opportunity cost? Explain with the help of example(s). 
The sacrifice made by the society to acquire more of one product and when the society forgoes the chance of availing the next best thing, the sacrifice is called the opportunity cost of choice. Every option includes marginal benefits because of marginal costs (scarce resources). While making a reasonable choice, the decision maker compares the amount of the two options and makes a suitable decision by forgoing one of them.
For example, while shopping for a wedding ring, there are various options with regard to the size of the diamond. The marginal cost of a purchasing a larger diamond is the expense in addition to the cost of a small diamond. The lifetime pleasure by purchasing a larger diamond is the marginal benefit. In case the marginal benefit of purchasing the larger diamond is more than its marginal cost, the larger diamond can be purchased if it is affordable. However if marginal cost exceed marginal benefit, it is advisable to purchase the smaller diamond even if it is affordable. In this world of scarce resources, the decision to avail marginal benefit related to a specific choice always involves marginal cost of forgoing certain options. The price paid to purchase a larger diamond means forgoing the opportunity to purchase certain other products. The opportunity cost - the value of forgoing the next best thing always exist when a choice is finalized (McConnell 2005 p.5).
Opportunity cost may be further explained with an example when the budged is limited. A person is given an amount of $120 to make purchases from a book store. The person decides to confine the purchases to DVD’s and paper back books that cost $20 and $10 each respectively. There are various combinations which the purchaser can choose to buy a set of either 3 DVD’s or 6 books for the precise value or make a lesser purchase. However, the person cannot make a purchase for a more value to include more books and DVD’s. The decision to forego the purchase of a DVD to buy books is the trade off to buy books and the decision to forego a certain number of books to purchase a DVD is the trade offs to buy DVD’s.
Therefore, the choice made by the person to forego the purchase of a combination of more DVD’s and books beyond the given budget is the opportunity cost in this example (McConnell 2005 p.8-9).
Works Cited
McConnell, C. R. 2005 Economics: Principles, Problems, Policies, 18e McGraw-Hill: New York Read More
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