Micro Economics : People Face Trade Off

When people have too many choices, they tend to get confused while making a decision on what to choose and what to eliminate. This phenomenon in perspective of economics is called as "Cost Benefit Analysis".

The cost of something is what you give up to to get it. This may also be called as "Opportunity Cost". This means what an individual is willing to give to get something better or extra

Rational people always think of the margin. In simple words when people have to choose between two similar choices they always choose the one, which gives them something extra or provide some extra benefit

For Example: A person wants to buy a car, but is confused between 2 cars of similar price range, he would then, prefer the car which has some extra accessories or better amenities.

People like getting a better offer or better services.

"People Respond To Incentives".

Cost Benefit Analysis

Concept of Cost Benefit Analysis:

• Cost benefit is a tool which modern financial analysts adopt before undertaking any financial operations or commercial activity.
• The ultimate aim of a business organization is to make profits.
• Therefore, any system in the organization must produce more benefits as compared to its costs for the organization to survive and prosper.

What is Cost Benefit Analysis?

•  A cost benefit analysis is done to determine how well a planned action will turn out.
• The analysis relies on the addition of positive factors and the subtraction of negative ones to determine a net result.
• Cost Benefit Analysis has been established primarily as a tool for use by governments in making their social and economic decisions.
• Cost Benefit Analysis measures costs and benefits to the community of adopting a particular course of action.

COST	BENEFIT
Any negative effect on an organization resulting from the implementation of the project. Examples: Maintenance costs Environment Research and development Labour Costs	A benefit is any positive effect on the organization resulting from the implementation of the project. Examples: Increase in productivity. Reduction in Costs. Saving Time.

The General Steps of Cost Benefit Analysis are:

1.        Specifying the project clearly
2.        Describe quantitatively the inputs and outputs of the program
3.        Estimate the Social cost and benefits of these inputs and outputs of the program
4.        Compare these benefits and costs