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Are All Choices "Economic?"

Updated: Aug 22, 2019

In an increasingly complex world, good, better, or best may not be your only options. Economist describe our options as trade-offs (opportunity cost), absolute advantage, and comparative advantage. The bottom line is that there are at least three reasons why all choices are "economic."





Trade-Offs

When considering trade-offs, one should begin with a simple cost-benefit analysis. How much must I give up in exchange for some level of value in return. What one calculates as best can be quite personal. In the absence of any direction, we rely on our personal filters to determine good, better, and best. Someone else may pay more than you would simply because he or she values the marginal utility obtained at a higher price.


Trade-offs are the same as opportunity costs. If we vote to raise taxes to pay for a school bond, it is because we have considered the cost of an alternative less-educated society.


Absolute Advantage

While you may feel like there are many things you are capable of doing on your own, there are likely trade-offs or opportunity costs to consider before moving forward. For example, some are absolutely convinced that an internal study about the reputation of an organization is best suited for an internal committee, but is it really? Would an independent review be better administered by an external organization?


Comparative Advantage

In the end, our rational minds should select whichever option delivers a comparative advantage. Sure, we could all have our own gardens and grow our own food. I believe our best choice will be one that produces the best economic outcomes and reduces the amount we must surrender or give up In return.


Conclusion

All choices are economic. The study of economics is in fact the study of people and choices. Adam Smith, the father of economics said that people are motivated by their own self-interest. Scientific studies suggest that human choices are generally irrational and emotional. If this is indeed true, what controls have you in place to ensure both you others in your care make rational economic decisions over costly emotional decisions?



Sources:

Zaltman, G., & Mahoney, M. (2003, January 13). The Subconscious Mind of the Consumer (And How To Reach It). Retrieved July 8, 2019, from https://hbswk.hbs.edu/item/the-subconscious-mind-of-the-consumer-and-how-to-reach-it







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