Incentive:
A thing that motivates or encourages one to do something. Wherein the consumer wouldn’t do it
unless there is an incentive. Example: BOGO, Sales
Offering incentives is one way to get customers to choose to come and spend money at
a business. Offering incentives is one way the government tries to get people to behave
responsibly.
Opportunity Cost:
● Opportunity Cost is the value of the next-highest-valued alternative that is given
up when you make a choice.
● A fundamental principle of economics is that every choice has an opportunity
cost
● The idea behind opportunity cost is that the cost of one item is the lost
opportunity to do or consume something else; in short, opportunity cost is the
value of the next best alternative.
● Opportunity costs can alter personal decisions and societal decisions.
Comparative Advantage vs. Absolute Advantage
Absolute Advantage is the ability to produce more of a good or service given
the same resources than others.( More production)
Comparative Advantage is the ability to produce a good or service at a
relatively lower opportunity cost than others.(Production using less
resources, i.e more quality production) if it has a lower opportunity cost in
production of the same service
Example:
If Cena can make more tacos in an hour than Bella, but Bella can make tacos at a
lower opportunity cost then:
• Bella has a comparative advantage in making tacos, and
• Cena has an absolute advantage in making tacos.
Relationship between Marginals and Totals
