Foundations of Economic Thinking: Groundwork and Rationality

A set of practice flashcards capturing the core concepts from the ground-level lecture on economic thinking, including scarcity, costs, rationality, incentives, methodological individualism, and behavioral examples.

What does the speaker call the set of foundational ideas that ground economic theory?

The 12 foundation stones.

What does scarcity imply in the economic framework discussed?

Choice, which implies cost.

What is the key claim about costs and benefits in economics regarding monetary expression?

All costs and benefits are ultimately nonmonetary; only some are expressed in money.

What is a common misconception about money in economics, as described in the lecture?

Money is not the ultimate end; it is a means and not all costs/benefits are measured in money.

In the supermarket example, what determines the true cost of the dog food?

The foregone alternative (root beer) and the satisfaction that alternative would have provided—not the money itself.

Why can being a full-time student entail a significant opportunity cost beyond tuition?

Because the next best alternative could be earning a full-time income (e.g., $40,000/year), which is foregone.

What are the two core assumptions about human nature discussed in the lecture?

People are rational and self-interested.

What are the three characteristics of a rational person?

Acts purposefully, learns from mistakes, and has transitive preferences.

What does it mean for a person to act purposefully?

Actions are goal-oriented rather than random.

What does it mean for preferences to be transitive?

If A > B and B > C, then A > C (no intransitive cycles).

How is 'self-interested' defined in the lecture?

Cares more about oneself and loved ones than strangers; intensity of care decreases with social distance.

What are incentives, and what are the two forms described?

Incentives are carrots (rewards) and sticks (punishments) that influence behavior.

Give an example of how incentives changed behavior in a transport context.

Paying prison-ship captains based on the number of prisoners who walk off healthy reduced death rates from about 50% to around 2%.

What does Gordon Tullock’s dagger example illustrate about safety policies?

Improving safety can change incentives in ways that may lead to riskier behavior elsewhere; consider unintended consequences.

What is 'methodological individualism'?

Social phenomena are explained by the choices of individuals; groups don’t act independently—individuals do.

What does the saying 'actions speak louder than words' convey in the context of this lecture?

What people actually do is a better indicator of their true preferences than what they say.

Describe the 'circle of care' concept.

A set of concentric circles with you at the center; closer people are cared about more intensely, and the intensity declines with distance.

Who is the world's leading expert on you, according to the lecture?

You are—the person with the most knowledge about your own preferences and choices.

Why do economists trace outcomes back to individual choices?

Many social phenomena (prices, wars, trends) arise from countless individual decisions; understanding requires tracing them to individuals.