Exam #1 Flashcards
Evaluate the full set of costs and benefits of any choice, and inly pursue those whose benefits are at least as large as their costs.
Cost-benefit Principle
The total benefits minus total costs flowing from a decision.
Economic Surplus
The value of the next best alternative you have to give up to get something
Opportunity Cost
A graph that shows the different sets of output that are attainable with your scarce resources
Production Possibility Frontier
Decisions about quantities are best made incrementally
Marginal Principle
The extra benefit from one extra unit
Marginal Benefit
The extra cost from one extra unit
Marginal Cost
If something is worth doing, keep doing it until your marginal benefits equal your marginal costs.
Rational Rule
Your best choice depends on your other choices, the choices others make, developments in other markets and expectations about the future
Interdependence Principle
Each additional item yields a smaller marginal benefit than the previous item.
Diminishing marginal benefit
A good for which higher income causes an increase in demand
Normal Good
A good for which higher income causes a decrease in demand
Inferior Good
When a good becomes more useful because other people use it.
Network Effect
When a good becomes less valuable because other people use it
Congestion Effect
Costs - like labor and raw materials - that vary with the quantity of output you produce
Variable Costs
