Microeconomics Chapter 1

Opportunity Cost

The value of all that must be forgone in order to engage in that activity

opportunity cost

The value of what must be forgone in order to undertake an activity is known as

normative economic principle

Is the Cost-Benefit principle a positive economic principle or a normative economic principle?

a positive economic principle

Is the incentive principle a normative economic principle of a positive economic principle?

$2

If it costs Sarah $400 to make 200 Christmas cookies, then her average cost of making a Christmas cookie is what?

rational

In Economics, a _______________ individual is someone with well-defined goals who tries to fulfill those goals as best he or she can

normative

A __________ economic principle is one that says how people SHOULD behave

surplus

Economic __________ is the difference between the benefit of taking an action and its cost

$3

If Sarah gets $600 worth of benefit from making 200 Christmas cookies, then her average benefit from making a Christmas cookie is what?

Opportunity Cost =

Implicit Cost + Explicit Cost

a.) Can help us make better decisions even if most people don't consciously use economic models to make decisions

Learning more about economic models a.) Can help us make better decisions even if most people don't consciously use economic models to make decisions b.) Is only useful to the extent that people consciously use economic models to make decisions

Positive Economic Principle

One that predicts how people will behave

Normative Economic Principle

One that says how people should behave

Economic Surplus

The benefit of taking an action minus its cost

Sunk Cost

A cost that is beyond recovery at the moment a decision must be made

The Incentive Principle

A person (or a firm or a society) is more likely to take an action if its benefit rises, and less likely to take it if its cost rises

predicts how people WILL behave

A positive economic principle . . . ?

sunk

A(n) __________ cost is a cost that is beyond recovery at the moment a decision must be made

normative positive

The Cost- Benefit Principle is a ________ economic principle, while the Incentive Principle is a ________ economic principle

Marginal Benefit

The increase in total benefit that results from carrying out one additional unit of an activity

Marginal Cost

The increase in total cost that results from carrying out one additional unit of an activity

average

The total benefit of carrying out n units of an activity divided by n is the activity's __________ benefit

Average Benefit

The total benefit of undertaking n units of an activity divided by n

Average Cost

The total cost of carrying out n units of an activity divided by n

Implicit Cost

Value of time

The Scarcity Principle (No Free Lunch Principle)

Although we have boundless needs and wants, the resources available to us are limited. Having one more of a good thing usually means having less of another.

The Cost-Benefit Principle

An individual (or a firm or 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

a.) the study of individual choice under scarcity and its implications for the behaviors of prices and quantities in individual markets

Microeconomics is _______________ a.) the study of individual choice under scarcity and its implications for the behaviors of prices and quantities in individual markets b.) the study of the performance of national economics and politics that governments use to improve that performance

Explicit Cost

Monetary value

Rational Person

Someone with well-defined goals who tries to fulfill those goals as best as he or she can

Microeconomics

Study of individual choices under scarcity and its implications for the behavior of prices and quantities in individual markets

Macroeconomics

Study of the performance of national economies and the policies that governments use to try to improve that performance

a.) Use the 10% off coupon for the cleats because it's a bigger dollar savings

Suppose you plan to buy a new pair of cleats and a new pair of shin guards at your local sporting goods store. You have a 10% off coupon for the cleats and a 50% off coupon for the shin guards. If soccer cleats are $70 and shin guards are $10, and the store will only accept one coupon per customer, then what should you do? a.) Use the 10% off coupon for the cleats because it's a bigger dollar savings b.) Use the 50% off coupon for the shin guards because it's a bigger percentage savings

The extra benefits from taking the action are at least as great as the extra costs

The Cost-Benefit Principle states that an individual or society should only take an action if or only if . . .

is more likely to take an action if its benefit rises, and less likely to take an action if its cost rises

The Incentive Principle asserts that a person:

opportunity

The _______ cost of an action is the value you place on the next best alternative

scarcity

The ________ principle states that although we have boundless needs and wants, the resources available to us are limited, so having one more of one good thing usually means having less of another thing

marginal

The __________ benefit of an activity is the increase in total benefit that results from carrying out one additional unit of the activity