Chapter 1 Flashcards
Define economics
The study of the choices we make with our scarce resources.
What are the categories of resources. Are these resources scarces?
Natural Resources
Capital Resources
Labor Resources
Yes - These are all scarce resources.
Define a rational decision
choice was made to take an action because the benefits of that choice outweighed the costs OR a choice was rejected because the costs outweighed the benefits
Define and Provide an example of an opportunity cost
economic cost associated with a choice
A job offer may provide a higher salary but lower opportunity for promotion. The lower opportunity for promotion is an opportunity cost.
Describe the opportunity cost associated with “free” goods
The time is takes to aquire the free good,
Recognize sunk costs
Are opportunity costs always explicit, always implict, or sometimes both.
both
Define marginal cost and marginal benefit. Discuss marginal costs and benefits using the years of college example in the text
Marginal benefit:
The additional benefit associated with one more unit
Marginal cost:
The additional cost associated with one more unit
The marginal benefit appears to fall as the number of years of college rises. The benefit of an additional year of college (i.e., the marginal benefit) is measured by the increase in overall lifetime earnings that year of college generates. Because an increase in the number of years you stay in college reduces the number of years over which you’ll be earning those higher salaries, the marginal benefit tends to decline.
The cost of an additional year of college (i.e., the marginal cost) is measured by the increase in the explicit and implicit opportunity costs associated with each year of college. Since both tuition and forgone earnings tend to rise the longer a student has been in college, the marginal cost of the last year of college is typically higher than the marginal cost of the first year of college.
Draw a marginal cost, marginal benefit chart
See Figure 1.1
Distinguish between normative and positive analysis
Define Natural Resources
resources that exist on the earth naturally, like coal, water, and land
Define Capital Resources
man-made resources like buildings, tools, or machinery.
Define Labor Resources
The capacity of human beings to be productive
Is Money an economic resource
No
What is the difference between an implicit and explicit cost
An explicit cost involves a monetary payment.
