Chapter 1: Intro Flashcards
Microeconomics deals with
- behaviour of decision makers (individuals, households + firms)
- operation of product, labour + capital markets
- interaction of individuals, households + firms in markets
According to Krugman, economies is defined as
the social science that studies production, distribution + consumption of goods + services
resource
anything that can be used to produce something else; labour, land
benefit
pleasure/value gained from doing something
cost-benefit rule
take an action only if benefit is more or equal to the cost
cost
what is given up by taking an action
Willingness to Pay (WTP)
max amount that a person is willing to pay to take an action or buy something
The 4 principles that govern how individuals make choices
- Choices are necessary because resources are scarce
- The True Cost of Something is Opp Cost
- How Much is a decision at the Margin
- People Respond to Incentives
Opportunity Cost
value of the next nbest alternative action/actions that could have been taken with resources used to take action x
explicit costs
costs that involve spending money
implicit cost
costs that don’t involve spending money but forgoing a benefit
Net Benefit Formula
NB = B=C
Marginal Decisions
how much of an action to take
Marginal Cost (MC)
incremental cost of doing a little more of an activity
Marginal Benefit (MB)
incremental benefit of doing a little more of an activity
