Lectures Flashcards
(51 cards)
Positive Statement
Descriptive claim
Normative statement
claims about what ought to be
Cost-benefit principle
Only pursue choices whose benefits are as large as their costs
willingness to pay
how much are you willing to pay for a benefit?
Framing
how different alternatives are described
Opportunity cost
the most valuable alternative you have to give up to pursue a choice
Sunk costs
losses that have already been incurred
Production possibility frontier
shows various outcomes you attain with your scarce resources
marginal principle
decisions about quantity are best made incrementally. Break “how many” decisions down into a series of marginal questions
diminishing marginal benefit
when marginal benefit starts to decline for each additional unit
increasing marginal costs
marginal costs increase for each additional unit
rational rule
If something is worth doing, keep pursuing it until marginal benefits equal marginal costs
interdependence principle
your best choice depends on your other choices, the choices others make, expectations and developements in other markets
modeling principle
Because behavior is complicated, try breaking it down into a simple model
preferences
how you value different choice
demand curve
shows relationship between the price of a good and the quantity of that good
ceteris paribus
keeping other things the same
Law of demand
As price decreases, quantity demanded increases
Demand curve shifters
- income
- preferences
- expectations
- congestion and networking effects
- type and number of buyers
- price of related goods
supply curve
relationship between price and quantity a supplier is willing to supply at that price
Law of supply
As the price of a good increases, the quantity supplied increases
Perfect competition
all firms sell an identical product and there are a large number of buyers and sellers
Fixed costs
costs that don’t depend on quantity produced
variable costs
costs that depend on quantity produced
