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