Chapter 1 Flashcards
Scarcity Principle
“Having more of one good thing usually means having less of another”
Cost-Benefit principle
“No action takes place unless its marginal benefit is at least as great as its marginal cost”
Incentive principle
“Incentives are central to people’s choices
Principle of unequal costs
Marginal, opportunity, sunk, average
Principle of Comparative advantage
“Everyone does best when each one concentrates on the activity for which he or she is relatively most productive”
Equilibrium principle
“A market in equilibrium leaves no unexploited opportunities for individuals, but may not exploit all gains achievable through collective actions”
Efficiency principle
“Efficiency makes the economic pie grow larger”
Marginal cost
extra cost for one more unit, care about when want to make decisions
Rationality
All human beings are rational, people know their preferences - they will act based on what we prefer
Ceteris paribus
All other things being equal
Opportunity cost
For the second best alternative, the thing we did not get when getting the first one
Sunk cost
A cost that you have that you cant get the money back once its paid. Ignore sunk-costs, can be a train ticket. Make wise decisions instead
Average cost
Total cost/quantity, we do not make decisions on average costs, we use marginal costs
Three/four decision pitfalls
Three/four general cases of mistakes
First pitfall/mistake
Measuring costs and benefits as proportions instead of absolute amounts
