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
2
Q
Microeconomics
A
the study of individual decisions making and the impacts for specific markets
3
Q
Macroeconomics
A
the study of decision-making across the whole economy
4
Q
4 core principles for analyzing decisions
A
- cost-benefit
- opportunity cost
- marginal
- interdependence
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
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
7
Q
economic surplus
A
total benefits - total cost
8
Q
maximizing economic surplus
A
- follow the cost-benefit principle to yield higher benefits
- by maximizing economic surplus, you make good decisions
9
Q
framing
A
refers to how different alternatives are described or framed
10
Q
framing effects
A
can lead you astray and can make identical choices seem different
11
Q
opportunity cost
A
the true cost of something is the next best alternative you must give up to get it
12
Q
scarcity
A
- occurs because resources are limited
- therefore, all choices require a trade-off
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
14
Q
applying the opportunity cost principle
A
- ask ‘‘or what”
- consider the alternatives
15
Q
sunk cost
A
- cost incurred and cannot be reversed
- not an opportunity cost
- good decisions ignore sunk costs