Lecture 2

Question 1

What is Opportunity Cost

Answer 1

value of best forgone alternative

Question 2

What is Marginalism

Answer 2

the additional utility received after an additional unit of good

Question 3

What is price inelasticity

Answer 3

consumer buying habit is relatively unchanged with price change

Question 4

What is price elasticity

Answer 4

consumer buying habit is very volatile with price change

Question 5

What is accounting costs

Answer 5

sunk cost + cost of expenditure

Question 6

What is marginalist principle

Answer 6

any policy should be carried out as long as marginal benefit > marginal cost

Question 7

Peltzman Effect

Answer 7

Safety regulation has no effect on car death toll

Question 8

What is marginal benefit

Answer 8

incremental change in consumers utility

Question 9

What is marginal cost

Answer 9

incremental change in cost (adding one extra unit)

Question 10

what are perverse incentives

Answer 10

people adjusting their behaviour to a policy incentive in a way which counteracts the policy’s intended effect