Basics Flashcards
(25 cards)
What is the cost-benefit principle?
Pursue an option whose benefits are at least as large as the costs.
What is opportunity cost?
The next best alternative you give up when making a choice.
What is marginal thinking in economics?
It refers to incremental decisions and evaluating costs/benefits of additional units.
What is the interdependence principle?
Choices depend on other decisions, other people’s actions, other markets, and expectations.
How should sunk costs be considered in economic decisions?
Sunk costs should be ignored because they cannot be recovered.
What is the Production Possibilities Frontier (PPF)?
The PPF illustrates the trade-offs between two goods that can be produced given a fixed amount of resources.
What is economic surplus?
The difference between the total benefits and the total costs of a decision.
What is the rational rule?
Continue doing something until the marginal benefits equal the marginal costs (MB = MC).
What does scarcity imply in economics?
Scarcity implies that resources are limited, so people must make choices.
How are interdependencies between markets important?
Choices in one market affect others, for example, a housing decision can affect commuting time and costs.
What are marginal benefits?
The additional benefit gained from consuming or producing one more unit of something.
What are marginal costs?
The additional cost incurred from consuming or producing one more unit of something.
What is meant by ‘time is valuable’ in economics?
Time has an opportunity cost, as spending time on one activity means giving up time for another.
What is the significance of ignoring sunk costs?
Ignoring sunk costs prevents them from influencing future decisions, focusing only on marginal costs and benefits.
How does opportunity cost affect decision making?
It helps in evaluating what you are giving up when choosing one option over another.
What is the importance of understanding dependencies between people’s choices?
Choices are often influenced by others’ decisions, such as in markets for goods or shared resources like roads.
What is a key principle of cost-benefit analysis?
Evaluate whether the benefits outweigh or are equal to the costs before making a decision.
Why should economic decisions consider future expectations?
Expectations about future markets or conditions can change the perceived costs and benefits of current decisions.
What role does interdependence play in individual choices?
An individual’s choice can be influenced by the choices of others, affecting outcomes for all involved.
What is the significance of the rational rule in decision-making?
It ensures efficiency by guiding individuals to make decisions where marginal benefits equal marginal costs.
Why are opportunity costs important in resource allocation?
They help in assessing the trade-offs and maximizing the value of scarce resources.
What is the framework for analyzing decisions?
The framework includes cost-benefit, opportunity cost, marginal analysis, and interdependence principles.
What is the economic significance of time in decision making?
Time is a scarce resource, and its allocation affects the opportunity cost of decisions.
What is meant by ‘avoid framing effects’ in decision making?
Avoiding framing effects means making decisions based on actual costs and benefits rather than how the information is presented.
