Ch. 1 The 4 Core Principles of Economics Flashcards
Cost-Benefit Principle
Evaluate the full set of costs and benefits of any choices, only pursuing those in which the benefits outweigh the costs
Economic Surplus
The total benefits minus total costs flowing from a decision
Framing Effect
When a decision is affected by how a choice is presented or described
Interdependence Principle
Your best choice depends on your other choices, choices made by others, development in markets and expectations about the future
Marginal Benefit
The extra benefit from one extra unit
Marginal Cost
The extra cost from one extra unit
Marginal Principle
Break decisions into asking “one more unit?” rather than “how many more”
Opportunity cost
The true cost of something is the next best alternative you have to give up to get it
Production Possibility Frontier
Shows the different set of outputs that are attainable with your scarce resources
Rational Rule
If something is worth doing, keep doing it until your marginal benefits equal your marginal costs
Scarcity
Resources are limited, you will always face a tradeoff
Someone else’s shoes
Mentally trade places with someone so you can understand their objectives and constraints
Sunk Cost
A cost that has been incurred and can’t be reversed
Willingness to pay
The maximum amount a buyer is willing to pay for something
