Economics: Theory and Practice, 10th Edition

CHAPTER 11

Benefits, Costs, and Maximization

CHAPTER OBJECTIVES

To explain the basic process of balancing costs and benefits in economic decision making.

To introduce marginal analysis, and to define marginal benefit and marginal cost and explain their relationship to total benefit and total cost.

To explain how individuals measure the costs and benefits of actions, and to introduce the Law of Diminishing Marginal Utility.

To explain the measurement of business costs, revenues, and profit, and to differentiate between normal and economic profit.

To identify the rules for maximizing satisfaction by individuals and maximizing profit by businesses.

To introduce the concepts of externalities and social costs and benefits.

To examine how individual costs and benefits form the basis of collective, or public, choices.

As we know, life is all about choices, big and small. Individuals and businesses are constantly making choices while weighing their costs and benefits to try to maximize some result. We choose how to spend our time and money; businesses choose products to sell and how to operate; and as a society we make collective choices that impact our lives.

Whether we are trying to figure out what to do on a Saturday night, or a developer is trying to decide about the best housing options for a project, or government officials are trying to set air quality standards, the thinking ...