budget constraint. Choices beyond the budget constraint are not affordable.

Opportunity cost measures cost by what we forgo in exchange. Sometimes we can measure opportunity cost in

money, but it is often useful to consider time as well, or to measure it in terms of the actual resources that we

must forfeit.

Most economic decisions and tradeoffs are not all-or-nothing. Instead, they involve marginal analysis, which

means they are about decisions on the margin, involving a little more or a little less. The law of diminishing

marginal utility points out that as a person receives more of something—whether it is a specific good or

another resource—the additional marginal gains tend to become smaller. Because sunk costs occurred in the

past and cannot be recovered, they should be disregarded in making current decisions.

2.2 The Production Possibilities Frontier and Social Choices
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