Which concept explains that decisions are made by weighing marginal benefits against marginal costs?

The concept that best explains the weighing of marginal benefits against marginal costs is known as rational choice theory. This economic principle asserts that individuals make decisions by comparing the additional benefits of an action (marginal benefits) against the additional costs incurred (marginal costs). In making choices, individuals aim to maximize their utility, which means they seek the option that provides the greatest net benefit.

Rational choice theory emphasizes that decision-making is a logical process where people evaluate the trade-offs of different actions. This evaluation is essential in determining the most effective use of resources, ensuring that choices reflect personal preferences and the actual benefits versus costs involved.

The other concepts relate to important economic ideas but do not specifically address the decision-making process in terms of marginal analysis. The scarcity principle focuses on the limitations imposed by finite resources; incentive structure examines how different factors motivate behavior; cost-benefit analysis is a broader approach that may include fixed and averaged costs rather than specifically marginal ones. Thus, rational choice theory captures the essence of making decisions based on marginal considerations.