Chapters 1, 2, and 3: Introduction to Economics, Supply and Demand Flashcards
Cost-Benefit Principle
the idea of only pursuing a choice if its benefits are greater than its costs (willingness to pay), economic surplus is a guarantee if followed
Opportunity Cost Principle
the idea of something’s true value being whatever you gave up for it, or your next best option; using trade offs and the “or what?” principles
Marginal Principle
the idea of incremental decision making; continuing to purchase or sell until your marginal benefits equal your marginal costs will lead to maximum economic surplus
Interdependence Principle
the idea that all economic decisions are made connectedly with the choices of others, markets, and expectations
Economic Surplus
total benefits - total costs (non-monetary values as well, such as your value thus willingness to pay)
Framing Effects
when an economic decision is manipulated by something; avoid them!
Sunk Cost
an irreversible cost that is completely irrelevant and should not be weighed into costs and decision making
PPF (Production Possibilities Frontier)
shows available output and trade-offs with scarce resources
Individual Demand Curve
a person’s purchasing plans at a certain price, visually summarizing willingness to pay.
Ceteris Paribus
a latin term for “holding things constant”, fixing all factors BUT price
Law of Demand
as price lowers, quantity demanded rises; always slopes downwards
Market Demand Curve
total quantity of an item demanded by the whole market at a certain price; always downward sloping because of lowering prices leading to more units sold.
Market Demand Curve
total quantity of an item demanded by the whole market at a certain price; always downward sloping because of lowering prices leading to more units sold.
Increase in Demand
a shift to the right in the demand curve
Decrease in Demand
a shift to the left in the demand curve
