1. The core principles of economics Flashcards

1
Q

Economic approach

A
  • is the study of people ‘in the ordinary business of life’
  • helps you make better decisions
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2
Q

Microeconomics

A

the study of individual decisions making and the impacts for specific markets

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3
Q

Macroeconomics

A

the study of decision-making across the whole economy

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4
Q

4 core principles for analyzing decisions

A
  • cost-benefit
  • opportunity cost
  • marginal
  • interdependence
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5
Q

The cost-benefit principles

A
  • evaluate the full set of costs and benefits
  • pursue the choices whose benefits are at least as large as their costs
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6
Q

Money as a measure

A
  • allows you to compare costs and benefits
  • take account of a wide variety of nonfinancial gains, satisfaction and time
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7
Q

economic surplus

A

total benefits - total cost

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8
Q

maximizing economic surplus

A
  • follow the cost-benefit principle to yield higher benefits
  • by maximizing economic surplus, you make good decisions
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9
Q

framing

A

refers to how different alternatives are described or framed

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10
Q

framing effects

A

can lead you astray and can make identical choices seem different

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11
Q

opportunity cost

A

the true cost of something is the next best alternative you must give up to get it

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12
Q

scarcity

A
  • occurs because resources are limited
  • therefore, all choices require a trade-off
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13
Q

4 lessons about opportunity costs

A
  • some are out-of-pocket costs
  • don’t need to involve out-of-pocket financial costs
  • not all out-of-pocket costs are real opportunity costs
  • some nonfinancial costs are not opportunity costs
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14
Q

applying the opportunity cost principle

A
  • ask ‘‘or what”
  • consider the alternatives
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15
Q

sunk cost

A
  • cost incurred and cannot be reversed
  • not an opportunity cost
  • good decisions ignore sunk costs
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16
Q

PPFs

A
  • illustrates the trade-offs when deciding how to allocate scarce resources
  • illustrates the different sets of output that are attainable with scarce resources
17
Q

move along the PPF

A
  • producing more of one good means producing less of another
18
Q

marginal principle

A
  • helps to maximize economic surplus
  • break down decisions into smaller ones
  • weigh marginal benefits and marginal costs
19
Q

marginal benefit

A

the extra benefit from one unit

20
Q

marginal cost

A

the extra cost from one extra unit

21
Q

when is the marginal principle useful

A

marginal principle: how many decisions not either/or
cost benefit: either/or
(apply marginal, then cost-benefit)

22
Q

rational rule

A
  • if something is worth doing, keep doing it until your MB=MC
  • leads to good decisions
  • maximizing economic surplus
23
Q

interdependence principle

A

the best choices depend on other choices you make, others make, developments and expectations

24
Q

4 types of interdependencies

A
  • individual choices
  • people/businesses in the same market
  • between markets
  • through time
25
Q

using core principles in practice

A
  1. marginal
  2. cost benefit
  3. opportunity cost
  4. interdepence