Econ chapter 1

what is the total benefits minus total costs flowing from a decision

economic surplus

if you either choose to do these things or not then these are

either or choices

the marginal principle suggests that you evaluate whether the

extra benefit from hiring one more worker exceeds the extra cost of that extra worker

applying the cost benefit principle to the marginal choice of whether or not to hire one more worker says you should

hire one more worker only if the marginal benefit exceeds the marginal cost

The cost benefit principle says that you should make choices based on the underlying costs and benefits of the choice you face, rather than

how they are described, or framed.

how many hours per week should i work

if you are able to change your hours of work then ask should I work one more hour If you can't change the number of hours you work then this is an either or question and cant be simplified

To forecast the decisions others make, put yourself

in someone else's shoes. If you had their objectives and constraints what decisions would you make

what else is the

interdependence principle

your best choice depends on your other choices, the choices others make, development in other markets, and expectations about the future. When any of these factors change, your best choice might change is the

interdependence principle

main question is how many should I buy, what would the cost benefit principle be

is the marginal benefit greater than the marginal cost

When both spouses work, households are more likely to need two cars. Your choice in the car market depends on the

labor market

a frontier describes the

most you can produce given your current circumstances

which principles states that The true cost of something is the next best alternative you must give up to get it. Your decisions should reflect this opportunity cost, rather than just the out

of-pocket financial costs. -the opportunity cost principle

or what is the

opportunity cost

the or what trick applies to the

opportunity cost principle

which principle says that the true cost of something is the best alternative you give up to get it

opportunity cost principle

what shows the different sets of outputs that are attainable with your scarce resources

production possibility frontier

If you live in an area with many high

quality, low-cost child-care options, you may be more likely to return to work soon after becoming a parent. Your choice in the labor market depends on the -market for child care

Rising interest rates in the credit market make it more expensive to get a mortgage, which might lead you not to buy a home. Your choice in the housing market depends on

the credit market

use the marginal principle by breaking "how many" choices down into simpler marginal choices.

Ask yourself whether you would be better off doing a bit more of something, or a bit less.

what is interdependency one

Dependencies between each of your individual choices since you have limited resources (every choice you make affects the resources available for every other decision)

what interdependency three

Dependencies between markets, changes in prices and opportunities in one market affect the choices you might make in other markets

what interdependency two

Dependencies between people or businesses in the same market, you are competing for society's scarce resources (the motre others get, the less that's left for your and ur best choice depends on the choices that others make)

what interdependency four

Dependencies through time, (buying something tomorrow rather than today), is it better to act today or tomorrow. As expectations about the future changes, the terms of this trade off change and so does your best choice might also change

apply the marginal principle to the question (should i marry my current partner)

cant be simplified because this an either or question

apply the rational rule to the statement As a consumer: How many cups of coffee should you buy today?

Keep buying coffee until the marginal benefit (your willingness to pay for that last cup of coffee) is equal to the marginal cost (the price and, if it's late, how much it would stand in the way of getting a good night's rest).

apply the rational rule to the statement As an export company: How many tons of coffee should you export?

Keep exporting until the marginal benefit (the price you can get for the coffee overseas) is equal to the marginal cost (the price at which domestic producers will sell you one more ton, plus the price of shipping it overseas).

apply the rational rule to the statement As an employer: How many workers should you hire?

Keep hiring until the marginal benefit of an extra worker (the rise in revenues you get from selling more coffee) is equal to the marginal cost (the wages of that last worker and the cost of that extra coffee).

apply the rational rule to the statement As an investor: How much should you invest in a new chain of specialty coffee shops?

Keep investing until the marginal benefit (your return on the last dollar invested) is equal to the marginal cost. (This includes the opportunity cost of that last dollar: How else could you invest that dollar, and how could you spend it now?)

apply the rational rule to the statement As a producer: How many tons of coffee should you produce?

Keep producing coffee until the marginal benefit of producing an extra ton (the wholesale price you can sell it for) is equal to the marginal cost of producing another ton.

apply the rational rule to the statement As a worker: How many hours should you work as a barista?

Keep working until the marginal benefit (your hourly wage) is equal to the marginal cost of working (the value of the marginal hour of leisure time that you are missing).

MCOI stands for

Marginal Cost benefit Opportunity cost Interdependence

To evaluate all the relevant costs and benefits, you'll need to apply the opportunity cost principle and ask, "Or what?"

This ensures that you take full account of what you give up when you make a choice. You should focus on the relevant opportunity costs, not just financial out-of-pocket costs.

Then apply the cost

benefit principle by assessing the relevant costs and benefits. -Since you're analyzing a marginal question, this says you need to assess whether the marginal benefit exceeds the marginal cost.

main question is how many should I buy, the marginal benefit exceeds the marginal cost should you buy one more or no

buy one more

Whether your parents attend your younger brother's Tuesday evening choir recital depends on whether they're attending your sister's Tuesday evening soccer game. Your siblings are the

buyers in the market for parental attention

Your ability to date the most interesting person in your class depends on the other people they might date in your class. You are the

buyers in this market for dating

When demand for housing falls, entrepreneurs often convert existing homes into something else, such as child

care centers, making it easier for you to find child care. Your choice in the child care market depends on -the housing market

The interdependence principle helps you identify how

changes in other factors—in your own choices, other people, other markets, and expectations about the future—might lead you to make a different decision.

benefit beat cost is the

cost benefit principle

what are the four core principles that provide the foundation of all economic analysis

cost benefit, opportunity cost, marginal, and interdependence principles

how many interdependencies are there

four

what is when a decision is affected by how a choice is described or framed and should avoid it from altering your decision

framing effect

the extra cost of that worker is called the

marginal costs

one more is the

marginal principle

if something is worth doing, keep doing it until your marginal benefits equal your marginal costs

rational rule

apply the rational rule to the statement As a job

seeker: How many coffee shops should you send your résumé to? -Keep sending job applications until the marginal benefit (the value of the increased chance of finding a job) is equal to the marginal cost of an application (the time and hassle of filling out one more application).

Whether your vote sways the next election depends on whether my vote offsets yours. You are the

sellers for this markets of votes

Whether the school board adopts your new policy proposal depends on whether they prefer my alternative proposal.we're the

sellers in the market of ideas

main question is how many should I buy, what would the marginal principle ask

should I buy one more

apply the marginal principle to the question (how many pairs of should i buy)

should i buy one more pair shoes

apply the marginal principle to the question (how many children should i have)

should i have one more child

apply the marginal principle to the question (how many workers should i hire)

should i hire one more worker

apply the marginal principle to the question (how many classes should i take)

should i take one more class this semester

good decisions ignore what?

sunk costs

what is a cost that has been incurred and cannot be reversed and exists with whatever choice you make and hence is not an opportunity cost

sunk costs

which principle says do it if the benefits are at least as large as the costs

the cost benefit principle

which principle states that Costs and benefits are the incentives that shape decisions. You should evaluate the full set of costs and benefits of any choice, and only pursue those whose benefits are at least as large as their costs.

the cost benefit principle

which principle states that Your best choice depends on your other choices, the choices others make, developments in other markets, and expectations about the future. When any of these factors change, your best choice might change.

the interdependence principle

the extra benefit you get from one more worker is the

the marginal benefit

which principle states that Decisions about quantities are best made incrementally. You should break "how many" decisions down into a series of smaller, or marginal, decisions.

the marginal principle

which principle states that decisions about quantities are best made incrementally. You should break "how many" questions into a series of smaller or marginal decisions while weighing marginal benefits and marginal costs

the marginal principle

production possibility frontier illustrates the trade off (opportunity costs) you face when deciding how best to allocate scarce resources like

time, money, raw inputs, or production capacity

what is the big idea behind the interdependence principle that leads to two types of "what else questions"

what else

what is the second what else question

what else might affect my decision and who's answer will help you figure out all the ways in which your costs and benefits and your best choice might change if other factors change

what is the first what else question

what else might my decision affect since every decision has a ripple effect and youll need to assess them all in order to count the full set of costs and benefits that'll follow

main question is how many should i buy, the marginal benefit does not exceed the marginal cost then should you buy one more or no

you should not buy any more

the cost benefit principle and the opportunity cost principle together says that

you should pursue your choice if it yields benefits that are at least as large as the opportunity cost (or your next best alternative)