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Terms in this set (18)
The study of how agents (individuals, firms, governments, etc.) make choices, interact and respond to incentives.
the branch that deals with human behavior and choices as they relate to relatively small units: an individual, a firm, an industry, a single market
the branch of economics that deals with human behavior and choice as they relate to highly aggregate markets or the entire economy
The study of "what should be" in economics
deals with value judgements and opinions that cannot be tested.
ex. Why should taxes be cut
The study of 'what is" in economics
deals with cause-effect relationships that can be tested.
ex. What is the effect of cutting taxes?
something that encourages or motivates a person to undertake an action
Available resources are insufficient to satisfy wants
-Our wants are infinite, but our resources (which we need to produce our goods) are finite.
Act in some optimal way to achieve goals, according to their incentives.
factual statements w/no opinion attached.
-can help us reach normative conclusions. But our normative conclusions are always based on our own values and goods.
statements with opinions, or which include a value judgement.
the benefit of an increase in an activity, usually measured as one additional unit or the next unit
the cost of an increase in an activity, usually measured as one additional unit or the next unit
The most highly valued opportunity or alternative forfeited when a choice is made
net value of the next best alternative
How to solve an opportunity cost problem
1. Pick out which choice the question is asking about
2. Identify the benefits to every other choice
3. Check if any of the other choices have a cost associated
4. Subtract the cost from the benefit to get net value if so
5. Compare net values of the alternatives to find the highest one
This is the opportunity cost of the original choice
The higher the opportunity cost of doing something
the less likely a person will do that something
2 types of decisions
Discrete: attend college, car, job offer, etc
Buy if Total Benefit > Total Cost
Continuous :multiple quantities, or how many units to buy. Is the next plate at the buffet really worth it?
Buy if Marginal Benefit > Marginal Cost
Really asking which one has the higher marginal net benefit
anything from which individuals receive utility or satisfaction
anything from which individuals receive disutility or dissatisfaction
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