Ch. 1 Flashcards

1
Q

cost-benefit principle

A

The incentives that shape decisions. Evaluate the full set of costs and benefits of any choice, and only pursue those whose benefits are as large as their costs.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

economic surplus

A

Total benefits - total costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

framing effect

A

When a decision is affected by how a choice is described

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

interdependence principle

A

your best choice depends on your other choices, the choices others make, developments in other markets, and expectations about the future.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

marginal benefit

A

The extra benefit from one extra unit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

marginal cost

A

The extra cost from one extra unit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

production possibility frontier

A

Shows the different sets of output that are attainable with your scarce resources

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

marginal principle

A

Decisions about quantities are best made incrementally. You should break “how many” questions into a series into a series of marginal questions, weighing marginal benefits and marginal costs.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

opportunity cost

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Rational rule

A

If something is worth doing, keep doing it until your marginal benefits equal your marginal costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

scarcity

A

The problem that resources are limited

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

sunk costs

A

A cost that has been incurred and cannot be reversed. It is not an opportunity cost, so ignore when making decisions.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

someone else’s shoes technique

A

By mentally trading places with someone so you understand their objectives and constraints, you can forecast the decisions you will make.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

willingness to pay

A

In order to convert nonfinancial costs or benefits into their monetary equivalents, ask yourself, “what is the most I am willing to pay for this benefit?”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly