The Four Core Principles of Economics

These flashcards cover the key vocabulary terms related to the core principles of economics, providing definitions and context.

Cost-Benefit Principle

The principle stating that individuals should make decisions based on the evaluation of the full set of costs and benefits associated with a choice.

Willingness to Pay

The maximum amount an individual is willing to pay to obtain a benefit or avoid a cost.

Economic Surplus

The difference between the total benefits and the total costs resulting from a decision.

Opportunity Cost

The true cost of something is the value of the next best alternative that is forgone when making a decision.

Sunk Cost

A cost that has already been incurred and cannot be recovered, and should not influence current decision-making.

Marginal Principle

A decision-making framework that involves evaluating the additional benefits and costs associated with increasing or decreasing the quantity of a good or service.

Interdependence Principle

The concept that an individual's best choice is influenced by their own previous decisions, the choices of others, market developments, and future expectations.

Framing Effect

A cognitive bias where decisions are influenced by how choices are presented or described.

Scarcity

A situation in which resources are limited, necessitating trade-offs in decision-making.

Production Possibilities Frontier (PPF)

A graphical representation that illustrates the trade-offs between two goods, showing the maximum feasible quantities that can be produced with a given set of resources.