A trade-off (or tradeoff) is a situation that involves losing one quality or aspect of something in return for gaining another quality or aspect. More colloquially, if one thing increases, some other thing must decrease. Tradeoffs can occur for many reasons, including simple physics (into a given amount of space, you can fit many small objects or fewer large objects). The idea of a tradeoff often implies a decision to be made with full comprehension of both the upside and downside of a particular choice, such as when a person decides whether to invest in stocks (more risky but with a greater potential return) versus bonds (generally safer, but lower potential returns).
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.
