Economic Principle Test 2-4 Flashcards
Cost
everything you give up to get something
Explicit costs
dollars you spend (price)
Implicit costs
hidden costs that come with what you spend (opportunity costs, time, price, etc.)
Time
implicit cost
Opportunity cost
the opportunity you passed up/gave up when you chose to do something
Price
what you pay when you purchase something
Cost is different from price
because the price is just money you spend but the cost includes other variables like opportunity costs, time, gas, and price
Cost-benefit analysis
considering the costs and benefits of anything before you do it
Hyperbolic discounting
the human tendency to choose a smaller but sooner (now) reward over a larger but later reward
Law of unintended consequences
our choices will always have some unintended/unplanned/unintentional consequence regardless of how well we plan/choose/act
Our choices have costs and consequences
EP2
Incentive
a factor that encourages someone to act a certain way or do a certain action
positive incentives (“carrots”)
the hope of a reward
negative incentives (“sticks”)
the fear of punishment
Greed often beats rules
people will usually defeat government rules and policies that prohibit them from doing or getting something that they want because people will choose their own wants and needs over rules if they feel like rules shouldn’t apply to them
