Flashcards in Microecon Chapter One Deck (19)
Fundamental concept of economics that indicates that there is less of a good freely available than people would like.
The study of human behavior, with a particular focus on human decision making.
Allocating a limited supply of a good or resource among people who would like to have more of it, or amongst competing uses.
First Guidepost of Economic thinking
The use of scarce resources is costly, so decision makers must make trade-offs (TANSTAAFL principle).
Second Guidepost of Economic thinking
Individuals choose purposefully-they try to get the most from their limited resources.
Third Guidepost of Economic thinking
Incentives matter-changes in incentives influence human choices in a predictable way. Both monetary and nonmonetary incentives matter.
Fourth Guidepost of Economic thinking
Individuals make decisions at the margin.
Fifth Guidepost of Economic thinking
Although information can help us make better choices, its acquisition is costly.
Sixth Guidepost of Economic thinking
Beware of the secondary effects: Economic actions often generate indirect as well
as direct effects.
Seventh Guidepost of Economic thinking
The value of a good or service is subjective.
Eighth Guidepost of Economic thinking
The test of a theory is its ability to predict.
The highest valued alternative that must be sacrificed as a result of choosing an option.
Term used to describe the effects of a change in the current situation. For example, a producer's marginal cost is the cost of producing an additional unit of a product, given the producer's current facility and production rate.
Why are the value of goods and services subjective?
Because people can value goods differently.
Why are incentives important?
Because consumers respond to incentives.
First Pitfall of Economic thinking
Violation of the Ceteris Paribus Condition can lead one to draw the wrong collusion (Ceteris paribus: a Latin term meaning ‘other things constant')
Second Pitfall of Economic thinking
Good Intentions Do Not Guarantee Desirable Outcomes.
Third Pitfall of Economic thinking
Association Is Not Causation.