Economics Flashcards

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Economics

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The study of human behavior in the face of scarcity

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Scarcity

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The condition that exists because there are not enough resources to produce everyone's wants

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Cost-benefit principle

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When making a choice, evaluate the full set of costs and benefits associated with that choice. Choose the option that maximizes your benefits (utility) and pursue it only if the benefits are equal to or greater than the costs.

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Utility

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The total satisfaction received from a choice

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Incentives

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Factors that influence a person’s behavior

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Opportunity cost principle

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When faced with a choice, your decision should reflect this opportunity cost, rather than just the out-of-pocket financial cost

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Opportunity cost

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The next best alternative that you give up when you make a choice

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Marginal principle

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Decisions about quantity are best made incrementally. Break 'how many' decisions down into a series of smaller, marginal decisions.

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Interdependence principle

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Your best choice depends on your other choices, external developments, and expectations about the future. When any of these factors change, your best choice might change.