ECON102: (W1-L1) INTRO Flashcards
What is the definition of economics?
Economics is the study of how choices are made under conditions of scarcity.
What does the scarcity principle state?
Having more of one thing means having less of something else.
What is the cost-benefit principle?
Having more of one thing means having less of something else.
What is the cost-benefit principle?
A rational decision-maker should take an action if and only if the benefits outweigh the costs.
What is economic surplus?
Economic surplus is the difference between the benefits and costs of an action.
What is an example of a decision pitfall?
Measuring costs and benefits as proportions rather than absolute money amounts.
If a farmer can earn £60,000 by growing corn, what should she consider?
She should consider the opportunity cost of £100,000 by growing wheat instead.
What is opportunity cost?
Opportunity cost is the value of the next best alternative that is foregone by taking a particular action.
Opportunity cost is the value of the next best alternative that is foregone by taking a particular action.
The opportunity cost is the value from going to the workshop plus the value of watching Netflix.
What is a sunk cost?
A sunk cost is a cost that is not recoverable at the moment a decision is made.
What is the sunk cost fallacy?
What is the sunk cost fallacy?
The sunk cost fallacy occurs when decisions are influenced by costs that cannot be recovered.
Who was awarded the 2002 Nobel Memorial Prize in Economic Sciences?
Kahneman was awarded the prize, shared with Vernon L. Smith
What does Kahneman’s work challenge in economic theory?
It challenges the assumption of human rationality prevailing in modern economic theory.
What is the focus when deciding how much of an activity to undertake?
The focus should always be on the cost and benefit of an additional unit of an activity.
