Trade Offs in Economics

9 Key excerpts on "Trade Offs in Economics"

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  The Give and Take of Sustainability

  Archaeological and Anthropological Perspectives on Tradeoffs

  • Michelle Hegmon(Author)
  • 2017(Publication Date)
  • Cambridge University Press

    (Publisher)

  12 Some Analytical Tradeoffs of Talking about Tradeoffs On Perspectives Lost in Estimating the Costs and Benefits of Inequality alf hornborg The concept of “tradeoffs” raises a number of issues regarding the organization of socioecological systems in the past and present. Most of these issues have been acknowledged and insightfully discussed by the editor in her chapters (Chapter 1 and Chapter 7) in this volume. In this chapter, I will add some further reflections on the tradeoffs represented by the very act of adopting a discourse on tradeoffs, focusing on the risks of subscribing to some of its implicit assumptions drawn from economics and resilience theory. I will be particularly concerned with how the discourse on tradeoffs can be used to rationalize and even justify inequalities in social systems where the most marginalized categories of people have no voice. Definitions of Tradeoffs and the Implicit Assumptions of Cost-Benefit Analysis In her introductory Chapter 1, Hegmon quotes a dictionary definition of tradeoffs as “giving up one thing in return for another.” In Chapter 4, Roscoe also resorts to a dictionary definition, referring to “a balancing of factors all of which are not attainable at the same time.” Logan in Chapter 5 defines a tradeoff as “the idea that when some things are gained, other things are lost,” and Spielmann and Aggarwal in Chapter 11 refer to “what needs to be given up in order to gain something else.” Such phrasings suggest a single managerial agent consciously deciding which course to follow, based on calculation and optimal balancing of costs and 272 benefits. As all of the contributors to this volume are of course aware, such conditions are rarely – if ever – applicable to socioecological change, and we should keep in mind that adopting the discourse on tradeoffs risks introducing tacit assumptions about the role of rational decision making in such processes.

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  Economics

  • William Boyes, Michael Melvin(Authors)
  • 2015(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  You trade off time at studying for time spent at the football game. scarcity The shortage that exists when less of something is available than is wanted at a zero price. 1. What are opportunity costs? opportunity cost The highest-valued alternative that must be forgone when a choice is made. 1 Notice the phrase “all else being the same.” The idea is that we are examining just one thing at a time—cost falls. It would be very, very difficult to ask what our attitude toward something is when cost falls, quality declines, color changes, our income decreases, and on and on. Thus, a common assumption, so common it is often not mentioned or written, is to allow only one thing to change. NOW YOU TRY IT Suppose you decided to attend a school where the tuition and other expenses add up to $4,290 per year. Are these your total costs? trade-off The giving up of one good or activity in order to obtain some other good or activity. 20 Chapter 2 Scarcity and Opportunity Costs Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Each decision is a marginal decision. By marginal, economists mean additional or incremental or next unit. For instance, each term you must decide whether or not to register for college. You could work full time and not attend college, attend college and not work, or work part time and attend college. The time you devote to college will decrease as you devote more time to work.

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  Introductory Microeconomics

  • Michael Veseth(Author)
  • 2014(Publication Date)
  • Academic Press

    (Publisher)

  Economists call the value of the best foregone option the opportunity cost of a decision. The concepts of opportunity cost and trade-off are familiar to all of us. Everyone at one time or another in their childhood was faced with the problem of a small pocketful of coins and a large counterful of candy. If you buy one you must give up the other. We face that problem still, and the decisions are made no easier by the maturity (and fuller pockets) that we have gained since childhood. Economists use a model called the production possibilities curve (PPC) to illustrate the problem of scarcity, the reality of the trade-off, and the concept of opportunity cost. Let's begin by building a production possibili-ties curve for a hypothetical student. Joe College has only a few hours left to study before the Big Economics Exam. His scarce resource is time. Being a less-than-typical student, Joe hasn't read the textbook yet and so must try to devour (and retain) as many pages of economics as possible. As if this weren't enough of a problem, Joe must also turn in an English THE PROBLEM OF SCARCITY 5 term paper just before the exam. Typically (for Joe), he hasn't done this assignment either, and so he must try to get as much written as possible in the short time remaining. Let's look at the options available to Joe College in trying to pass both Economics and English. Joe's ability to read economics and write his English term paper are illustrated in Figure 1. Shown here are Joe's production functions for economics reading and term paper writing. Production functions show the relationship between the resources used (Joe's time) and the production that results (economics pages read and English pages written). Joe's production functions display several characteristics that we find for producers in the real world. First, note that production increases as more and more resources are used.

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  Equity and Choice

  An Essay in Economics and Applied Philosophy

  • Julian Le Grand(Author)
  • 1991(Publication Date)
  • Routledge

    (Publisher)

  This chapter has made three main points. First, there are two types of trade-off to which the concept of an equity-efficiency trade-off could refer: a value and a production trade-off. In practice, it is often the latter that is of concern; but the two must be kept distinct.

  Secondly, at least according to one general definition of efficiency—one that refers to society’s ability to attain its primary objectives—the notion of a trade-off between equity and efficiency literally does not make sense; for trade-offs can only occur between these primary objectives, of which efficiency is not one.

  Thirdly, even if efficiency is interpreted in such a way as to make it a primary objective, such as in terms of economic growth or of Pareto-optimality, there are serious problems in teasing out precisely what is being traded-off against what (in either value or production terms). Pareto-optimality, in particular, is more accurately viewed as a specialized form of social welfare function that itself incorporates a concept of equity; one that, under reasonable assumptions, can be shown to favour the better off. Hence any trade-off between Pareto-optimality and a given conception of equity is not one between efficiency and equity, but is, at least in part, a tradeoff between two different kinds of equity.

  A final point. It is conventional in economics to treat efficiency, in contrast to equity, as a concept that is relatively unproblematic. If this chapter has done nothing else, it has, I hope, demonstrated that this relative complacency is misplaced. The interpretation of efficiency is as much a complex and value-laden business as the interpretation of equity; a fact that complicates even more the interpretation of the trade-off between them.

  Appendix 3.1

  1 Incentives and social security: an illustration

  In Figure 3.3, an individual’s money income, y, is plotted along the vertical axis and her leisure, l

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  Executive Economics

  Ten Tools for Business Decision Makers

  • Shlomo Maital(Author)
  • 2010(Publication Date)
  • Free Press

    (Publisher)

  TRADEOFFS Pain versus Gain “There is no gain without pain.” —Adlai Stevenson

  Tradeoffs—giving up something in order to get something else—are the mother of all opportunity costs. They lie at the heart of the executive’s job. And they are something of a paradox. The more successful you are, the greater the opportunity costs you face. In fact, success is measured by how well executives create this very thing that haunts and torments them.

  Every executive faces two tasks. First: to work with courage, skill, perseverance, and creativity to create tradeoffs where none presently exist. If you face no tradeoffs, your company is poorly managed. If you don’t have to settle for less of one thing, to get more of another, then it follows you could have more of everything if you just managed or organized affairs better. That, in turn, means there is much fat and slack in the system, which need to be eliminated. Second: to manage those tradeoffs in the best possible way, balancing gain and pain in a manner that leaves your business best off, with the most gain for the least pain.

  The textbook cliché for tradeoffs is “guns … or butter.” “Fewer guns could mean a whole lot more butter,” a Business Week article headline stated, in mid-1989. “By eliminating missiles and demobilizing troops, America could reap a sizeable peace dividend by the year 2000.”1 President Ronald Reagan had earlier promised to increase defense spending to match the USSR’s $300 billion defense budget. And he had kept his word. America’s 1981-85 military buildup created over 7 million defense-related jobs. The United States reached parity in defense spending with the USSR in about 1987. Slight reductions in domestic spending and a lot higher arms spending caused a growing deficit.

  Tradeoffs have a time dimension attached to them. Now that the arms race has ended, defense spending is being cut sharply in America. Shifting workers from defense-related plants to civilian ones—butter factories?—takes a long time. Meanwhile, as some economists have noted, the main peace dividend—not only in America—has so far been unemployment.

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  MICROECONOMICS PRINCIPL ES & POLICY

  • William Baumol, Alan Blinder, John Solow, , William Baumol, Alan Blinder, John Solow(Authors)
  • 2019(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  2. With limited resources, a decision to obtain more of one item is also a decision to give up some of another. The value of what we give up is called the opportunity cost of what we get. The opportunity cost is the true cost of any decision. This is one of the Ideas for Beyond the Final Exam. 3. When markets function effectively, firms are led to use resources efficiently and to produce the things that consumers want most. In such cases, opportunity costs Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 52 Part 1 Getting Acquainted with Economics and money costs (prices) correspond closely. When the market performs poorly, or when important, socially costly items are provided without charging an appro-priate price, or are given away free, opportunity costs and money costs can diverge. 4. A firm’s production possibilities frontier shows the combinations of goods it can produce, given the current technology and the resources at its disposal. The frontier is usually bowed outward because resources tend to be specialized. 5. The principle of increasing costs states that as the pro-duction of one good expands, the opportunity cost of producing another unit of that good generally increases. 6. Like a firm, the economy as a whole has a production possibilities frontier whose position is determined by its technology and by the available resources of land, labor, capital, and raw materials. 7. A firm or an economy that ends up at a point below its production possibilities frontier is using its resources inefficiently or wastefully.

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  An Introduction to Australian Public Policy

  Theory and Practice

  • Sarah Maddison, Richard Denniss(Authors)
  • 2013(Publication Date)
  • Cambridge University Press

    (Publisher)

  400 X Road 1000 All combinations along the line are possible Points outside the line are unachievable Railtrack Figure 3.1 The Production Possibility Frontier CHAPTER 3 THE ECONOMICS OF PUBLIC POLICY 53 The opportunity cost of something is what you give up in order to have it. When time is spent attending a lecture it cannot be spent being paid to be at work; when steel is used to make a car it cannot be used to make a train; and when scientists spend time researching cures for wrinkles, that time cannot be used to find a cure for cancer. As US president Dwight Eisenhower once said: Every gun that is made, every warship that is launched, every rocket that is fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed. This world in arms is not spending money alone. It is spending the sinew of its labourers, the genius of its scientists, the hopes of its children (1953). The concept of opportunity cost forces decision makers, whether they be individuals or national governments, to reflect on the relative desirability of alternatives. No matter what choices are made there will be disappointments, but good decision making can result in choices that maximise ‘wellbeing’ and, in turn, minimise short-ages and disappointment. 2 Marginal analysis The margin of a page is its outer edge. Economists often look at the impact of decisions ‘at the margin’ rather than at the overall impact to date. For example, economists will often take an interest in the ‘marginal cost’ of an activity, that is, the cost of making one more car or the benefit of putting one more teacher in a school, rather than focusing on the average cost of all the cars built this year or the average cost of educating all the students at a school. The reason for this interest in ‘ marginal costs ’ and ‘ marginal benefits ’ is directly related to opportunity cost.

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  Microeconomics

  A Contemporary Introduction

  • William A. McEachern(Author)
  • 2016(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  2-1a Opportunity Cost What do we mean when we talk about the cost of something? Isn’t it what we must give up—must forgo—to get that thing? The opportunity cost of the chosen item or activity is the value of the best alternative that is forgone . You can think of opportunity cost as the opportunity lost . Sometimes opportunity cost can be measured in terms of money, although, as we shall see, money is usually only part of opportunity cost. How many times have you heard people say they did something because they “had nothing better to do”? They actually mean they had nothing else going on. Yet, accord-ing to the idea of opportunity cost, people always do what they do because they have nothing better to do. The choice selected seems, at the time, preferable to any other possible alternative. You are reading this chapter right now because you have nothing better to do. In fact, you are attending college for the same reason: College appears more attractive than your best alternative, as discussed in the following case study. opportunity cost The value of the best alternative forgone when an item or activity is chosen • Opportunity cost • Comparative advantage • Specialization • Division of labor • Production possibilities frontier • Economic systems • Three economic questions • Capitalism, command systems, and in between C hapter 1 introduced the idea that scarcity forces us to make choices, but the chapter said little about how to make economic choices. This chapter develops a framework for evaluating economic alternatives. First, we con-sider the cost involved in selecting one alternative over others. Next, we develop tools to explore the choices available to individuals and to the economy as a whole. Finally, we examine the questions that different economies must answer—questions about what goods and services to produce, how to produce them, and for whom to produce them. Topics discussed in this chapter include: Copyright 2017 Cengage Learning.

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  Structured Decision Making

  A Practical Guide to Environmental Management Choices

  • Robin Gregory, Lee Failing, Michael Harstone, Graham Long, Tim McDaniels, Dan Ohlson(Authors)
  • 2012(Publication Date)
  • Wiley-Blackwell

    (Publisher)

  This chapter introduces what we mean by trade-offs and why they matter. It summarizes research on how people think about them and then outlines an approach for dealing constructively with trade-offs in a deliberative environment. We end, as in other chapters, with some tips for dealing with tricky but common situations involving tough trade-offs faced by groups working on environmental management decisions.

  The approaches we’ve chosen to highlight are not the only ways to make multi-attribute choices. You’ll find many other methods in the literature and we provide some references at the end of the chapter. Our focus is on methods that we believe are at once: (a) technically sound – at least enough to be sure they won’t be the weak link in your analysis; b) useful in facilitating dialogue and producing insights in a deliberative environment, and; (c) understandable and intuitively appealing to a broad range of both technical and non-technical people. Of course, these attributes are not entirely independent. The methods we present here are also largely methods that can be implemented effectively by environmental managers without a great deal of specialized training or proprietary software.

  9.1 The basics 9.1.1 What are trade-offs and why do we need to make them?

  Value trade-offs involve making judgments about how much you would give up on one objective in order to achieve gains on another objective. They are inevitable in a process that develops a creative range of alternatives. Of course, a creative decision process may also deliver win–wins – gains relative to the status quo for many or all objectives. But if you’ve done your job up to this stage, the alternatives still on the table will each deliver a different balance across the objectives and, as a result, making a choice among them involves making value-based trade-offs.

  Some people don’t like the term trade-offs – it has connotations of giving up something of value, perhaps in an unfair trade. If this is a concern then you can think of it as finding an acceptable balance across objectives, or simply making tough choices. The key point is that sensible decisions need to be based on the specific amounts of anticipated gains and losses, rather than on some general statement of principles or priorities. This point is important. We almost never ask for general priorities in SDM applications, whereas it’s common elsewhere – public opinion surveys, for example, often include questions such as: what’s more important, the economy or the environment? For nearly all resource-management decisions, such questions are meaningless – beyond understanding the broadest notion of a person’s worldviews – and any specific application of their answers may be misleading (see Text box 9.1

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