When choices are made (collectively or by an individual) to accept
having less of one thing in order to get more of something else, the
results are called trade-offs. For example, when one is allocating
(limited) funds, the trade-off usually involves reduced spending for
some purposes in order to be able to spend more for other more urgent
purposes. However, the concept does not apply only (or even
primarily) to decisions involving money. A student faced with the
choice of spending Saturday studying for a Political Economy exam or
shopping at The Mall makes a trade-off of shopping time for study time
in deciding how many hours to study and how many to spend shopping.
Society also makes trade-offs -- such as, for example, between its
need for a more plentiful supply of energy and its need to prevent
excessive deterioration of the environment caused by energy production
technologies. Evaluating trade-offs, when done carefully and
systematically, involves comparing the costs [see opportunity cost] and
benefits of each of the available alternatives with each other. Most
choices (and thus most trade-offs) are not all-or-nothing decisions;
rather they typically involve small changes at the margin -- a little
more of this at the cost of a little less of that. [see marginal analysis] Consumers
continuously practice marginalism and make trade-offs as they consider
whether to buy one more unit or one unit less of a good or service in
their efforts to obtain a mix of goods and services that afford them
the greatest satisfaction for their available buying power. Producers
must constantly be deciding (and reevaluating) their trade-offs in
choosing whether to produce somewhat more or somewhat less of a
particular product, whether to add a few more workers or lay a few
off, whether to invest in more plant and equipment or whether to close
down some of existing capacity, and so on -- in their efforts to
maximize profits.