test #1 Flashcards
(50 cards)
scarcity principle
trade-offs are widespread and important
cost-benefit principle
only take action If extra benefits from actions outweigh extra costs
rational person
one that works towards goals
opp. cost
totally loss
normative principle
how people should behave - value judgement
positive/descriptive principle
predicts how people will behave
incentive principle
more likely to do something if benefits increase than if costs increase
pitfalls
sunk costs, not looking at marginal costs/benefits, looking at proportions, ignoring implicit costs
Adam Smith
Father Econ
invisible hand theory
copy innovations for more clients
micro
Indiv. choice
macro
national economies
marginal decision making
additional change, next unit
utility
satisfaction, usefulness, pleasure
net benefit
total benefit - total costs
sunk cost
what you give up that cannot be changed by future actions
economic surplus
[benefit (willingness to pay) of an activity or good] - [what you give up]
bow shaped PPC
increasing opp. costs as economy produces more items
low hanging fruit principle
expanding production of any good, first employ those resources w/ lowest opp cost FAVORABLE OPPS FIRST
factors that shift economy’s production possibilities curve
new factories + equipment, diff funding, increased saving, population growth
Alfred Marshall
1st to understand relationship between costs and value
demand curve
downward sloping
substitution effect
increased price leads to switching to diff goods
income effect
increase price means decreased quantity demanded (reduction in purchasing power)
