Vocabulary I
The study of how people make choices under conditions of scarcity and the results of those choices for society.
Economics
Someone with well defined goals who tries to fulfill those goals as best they can.
Rational Person
A cost that is beyond recovery at the moment a decision must be made.
Sunk Cost
Suppose the most you are willing to pay for a plane ticket is $250. You find a ticket online for $175. What is the economic surplus?
$75
A underlying concept of economics is that wants are?
limited
One that predicts how people will behave.
Positive economic principle
One that says how people should behave.
Normative economic principle
An individual should take an action if, and only if, the extra benefit from taking the action are at least as great as the extra costs.
Cost benefit principle
Which branch of economics would study unemployment rates?
Macroeconomics
What branch of economics would study supply and demand?
Microeconomics
The value of what must be forgone to undertake an activity
Cost benefit principle
The study of individual choice under scarcity and its implications for the behavior of prices and quantities in individual markets.
Microeconomics
The study of performance of national economics and the policies that governments use to try to improve that performance.
Macroeconomics
Most people will make sensible decisions most of the time because we weight what?
Cost vs benefit
The main idea of economics is?
overconsumption
scarcity
incentives
costs
The benefits of taking an action minus its costs.
Economic surplus
The increase in total benefit that result from carrying out one additional unit of activity.
marginal benefit
The increase in total cost that results from carrying out one additional unit of an activity.
Marginal cost
The Cost Benefit Principle should always be determined/figured out by people by using what?
precise calculations of costs vs benefits
If your benefit on product #1 is $50 for a $1,500 item and for product 2 the benefit is $50 on an item that costs $11,000 which is the best choice for this person, item number one or item number 2?
both are the same as the benefit is exactly $50 in each case
A person is more likely to take an action if its benefits rise, and less likely to take the action if its costs rise.
Incentive principle
Although we have boundless needs and wants, the resources available to us are limited. So having more of one thing usually means less of another.
Scarcity principle
The total cost of an undertaking n units of an activity divided by n.
Average cost
What are the three common pitfalls of mistakes people make when making a decision?
proportions
ignoring implicit costs
failure to think at margin
Explain how normative economics is different from positive economics.
Normative is guidance on how we should behave for a decision
Positive is using the scientific method to study the decision