term1 Flashcards
what is Cost benefit principle
comparing the cost of an item say coffee. If you value the benefit of the item as higher or the same as the cost.
what is economic surplus
total benefit minus the total cost
what is opportunity cost principle
the cost is the next best alternative that you have to give up
what is sunk cost
a cost that has been incurred and cannot be reversed
what is the pff
production possibility frontier. and illustrates trade offs when allocating recourses
what is the marginal principle
decisions are best made incrementally.
what is marginal benefit and cost
the extra benefit or cot from one extra unit
what is rational rule?
if something is worth doing it keep doing it till marginal benefit equals marginal cost.
Following this rule leads to good decisions
what is interdependence principle
your best choice might change due to what is happening in the world
what is the demand curve
shows the quantity of an item that someone plans to buy at each price
what is law of demand
quantity demanded is higher when the price is lower.
what is diminishing marginal benefit
each additional item yields smaller marginal benefit
when do you shift the demand curve and when do you move along the demand curve
A shift of the demand curve is causes by an increase or decrease in demand .
Movement along the demand curve is due to a change in price or quantity
what are the factors that shift demand curve?
Incomes, price of related goods(complements and substitutes) , preferences, expectations and number of buyers
what are network effects
The effect that occurs when a good becomes more useful because other people use it. ▪ If more people buy such a good, your demand for it will also increase