Ag Econ Chapter 1

what is econ the study of

choices

what do the 4 core principles provide

a systematic framework for analyzing individual decisions

what is the first of the principles

cost-benefit principle

what is the 2nd principle

opportunity cost principle

what is the 3rd principle

Marginal principle

what is the fourth principle

interdependence principle

what 4 things do people have to consider when making a decision

cost-benefit principle, willingness to pay, economic surplus, understanding and avoiding framing effects

Define cost-benefit principles

costs and benefits are the incentives that shape decisions, evaluating the full set of costs and benefits associated with that choice

when do you know if you sure pursue a choice (Cost-benefit principle)

only if benefits are at least as great as the cost

Define willingness to pay

to convert nonfinancial costs or benefits into their money equivalent ask yourself whats the most your willing to pay

What is often confused with willingness to pay

willingness and want to pay

What is money used as to make finacial and nonfinacial decisons

it is a mesuring stick not the objective

What does it mean when it says cost-benefit analysis still allows unselfish decisons

you can buy something for your friend even though it doesn’t directly benefit you their happiness is your happiness

What is framing

the way things are said or presented can make you think differtly about the choice even though realistically their is nothing different between the two choices.

which type of decisions are marginal

the ones that ask if you should get one more of an item not a yes/no question.

Define economic surplus

total benefit- total costs from a decison

what does economic sure plus measure

how much a decision has improved your well being

How do you generate economic surplus

when you make a decison in accordance with the cost-Benefit principle

Opportunity cost

true cost of something is the next best alternative you have to get it

What should be focused on when we talk about opp. cost

trade offs from one decison to another

Is opp. cost only money

not just the money you lose doing said activity but what you could also be doing in that time

Is value always money

no value also contains things like emotions

What makes tradeoffs inescapable

scarcity

define sarcity

resources are limited, using resources for one activity means less for another one

What counts as opp. cost (college example)

Tuition and the salary you won’t be getting, not opp. cost would be food+ rent or time spent studying

Can staying where you are being an opp. cost?

yes, staying in the same job could be losing opp. cost cause you miss out on an oppurtunity

Define sunk cost

cost has been incurred and can’t be reversed (not opp. cost)

What is irrelevant to the current decision

sunk costs

What does production possibilities frontier show

different set of outputs that are attainable with your resources (illistrates tradeoffs)

what counts as an efficienct use of your time

time and resources that is allocated for on your production possibilities frontier

What is not an efficient use of your time

when resource use is below your PPF

when can you reach a point above your PPF

if you incrase productivity

Define marginal principle

decisions about quantities are best made incrementally

Define marginal benefit

extra benefit from 1 extra unit

define marginal cost

extra cost from one extra unit

what is the rational rule

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

when is economic surplus maximized

when marginal benefit equals the marginal cost

what are the 4 factors that play a role on the independence principle

your other choices, choices others make, other markets, expectations about the future