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23 Cards in this Set
- Front
- Back
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the study of how people make choices under conditions of scarcity and of the results of those choices for society.
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economics
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a fundamental fact of life
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scarcity
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Although we have boundless needs and wants, the resources available to us are limited, So having more of one good thing usually means having less of another
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Scarcity Principle
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An individual (or a firm, or a society) should take an action if, and only if, the extra benefits from taking the action are at least as great as the extra costs.
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The Cost-Benefit principle
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someone who has well-defined goals and try to fulfill them as best they can.
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rational person
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the economic surplus from taking any action is the benefit of taking that action minus its cost
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economic surplus
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the value of the next-best alternative that must be forgone in order to undertake the activity
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Opportunity Cost
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a cost that is beyond recovery at the moment a decision must be made
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sunk cost
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the increase in total cost that results from carrying out one additional unit of an activity
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marginal cost
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the increase in total benefit that results from carrying out one additional unit of an activity
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marginal benefit
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the total cost of undertaking n units of an activity divided by n.
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average cost
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the total benefit of undertaking n units of an activity divided by n
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average benefit
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says how people should behave
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normative economic principle
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the study of individual choice under scarcity and its implications for the behavior of prices and quantities in individual markets
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microeconomics
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the study of performance of national economies and the policies that governments use to try to improve that performance
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macroeconomics
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a person is more likely to take an action if its benefit rises and less likely to take it if its cost rises. In short, incentives matter
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incentive principle
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a schedule or graph showing the quantity of a good that buyers wish to buy at each price
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demand curve
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the change in the quantity demanded of a good that results because buyers switch to or from substitutes when the price of the good changes.
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substitution effect
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the change in the quantity demanded of a good that results because a change in the price of a good changes the buyer's purchasing power
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income effect
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a graph or schedule showing the quantity of a good that sellers wish to sell at each price
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supply curve
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the smallest dolar amount for which a seller would be willing to sell an additional unti, generally equal to marginal cost.
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seller's reservation price
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when there is no tendency for it to change
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equilibrium
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a maximum allowable price, specified by law
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price ceiling
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