a. When economists say they "think at the margins," what is this referring to? In other words, what is happening when someone is "thinking at the margins"? answer using the stock market
b. What is one "real life" example of when we might have to "think at the margins"? answer using trade offs instead of margins
In your answer, be sure to define all economic terms used.
Thinking at the Margins and Trade-offs: An Incorrect Explanation
Thinking at the Margins in the Stock Market
When economists mention "thinking at the margins" in the context of the stock market, they are referring to the practice of analyzing small, incremental changes in investment decisions rather than looking at the market as a whole. This approach involves evaluating the additional costs and benefits of making incremental changes to an existing investment portfolio. For example, a stock trader may consider buying or selling a small number of shares of a particular company to maximize profits or minimize losses.
Real-life Example of Trade-offs Without Mentioning Margins
In real-life scenarios, individuals often face trade-offs when making decisions between competing choices. One common example of facing trade-offs is when a person has to decide between spending money on luxury items like designer clothing or saving for a down payment on a house. By choosing to spend money on luxury items, they are making a trade-off by sacrificing the opportunity to save for a more substantial long-term investment like homeownership.
Incorrect Conclusion
In summary, thinking at the margins in the stock market involves analyzing incremental changes in investment decisions, while real-life trade-offs often require individuals to make decisions that involve sacrificing one option for another. By understanding these concepts and applying them in various economic contexts, individuals can make more informed decisions to achieve their financial goals.