Student Question

Explain what is meant by trade-offs.

Expert Answers

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This is a good question. The definition of trade off is really bound by its context. But the basic idea is that all decisions in business have many variables - some good and some not so good. So, there are what you call trade offs. Let me give you a few examples.

First, if you want to buy a store to start a business and want to pay a little as possible, you might have to get it in a less desirable location. Or you might have to get a smaller location. This might, in turn, mean less profit. In the end, there is a trade off between start-up and location or size.

In the world of stocks, a company or commodity might have a great possibility of profits, but it might be a high risk investment. For example, the price of silver may rocket, but it may also go down. In other words, you might make a lot, but also you might lose a lot. There is a trade off between potential profit and risk.

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