Economics Flashcards
Positive Analysis
How things are
- The min wage is __
Normative analysis
How things should be
- the min wage should be ___
Counterfactuals (How do they work, What do they do)
alternative state to compare and determine correlation or causality
Comparative Advantage
Opportunity cost of producing is less
Absolute Advantage
Advantage in total production
Behavioral Economics (Explain the massage theory)
Gains from Trade
Each party specializes in their Comparative advantage, becomes more efficient
Sunk Cost
cost that has already been incurred and cannot be recovered.
Sunk Cost Fallacy
the phenomenon whereby a person is reluctant to abandon a strategy or course of action because they have invested heavily in it. they Ignore the fact that it is a sunk cost
Opportunity Cost
the value of the option not taken when a business makes a decision
Decreasing Marginal Returns/Benefits
adding an additional factor of production results in smaller increases in output.
Value in Use vs. Market Value
Value in use (Water)
Market Value (diamonds)
Revealed Preference
if consumers are rational decision makers, then we can infer their preferences from their actions
