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9 Cards in this Set
- Front
- Back
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5 Key Principles for Economic Analysis
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1. Opportunity Cost
2. Agents compare marginal-benefits and costs 3. Individuals are self interested 4. Principle of Diminishing Returns 5. Real vs. Nominal |
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Opportunity Cost
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What you have to sacrifice to get something.
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Production Possibilities Frontier (PPF)
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Shows the combinations of goods that are attainable for an economy if resources are fully employed.
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Allocative Efficiency
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Goods produced are goods consumers want to buy.
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Marginal Benefit
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The additional benefit resulting from a small increase in some activity.
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Marginal Cost
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The additional cost resulting from a small increase in some activity.
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Marginal Principle
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Agents should increase the level of an activity as long as its marginal benefit exceeds its marginal cost.
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Principle of Diminishing Returns
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As we increase one factor of production while holding other factors fixed, then beyond some point of diminishing returns, output will increase at a decreasing rate.
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Real vs. Nominal
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The real value of money or its purchasing power is what matters to people. Not the nominal or “face” value of money.
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