Economics quiz

opportunity cost

 The value of the next-best choice you give up when you make a decision.

Differences in Opportunity Cost

 People make different choices because they have different opportunity costs. What is worth giving up for one person may not be worth giving up for another.

Economics

The study of how people make choices when they have unlimited wants but limited resources.

 Sunk Cost

A cost that has already been paid and cannot be recovered.

Example of a Sunk Cost

 You buy a movie ticket but realize you don't like the movie. The money you already spent is a sunk cost.

Marginal Thinking

 Comparing the additional benefits of a choice with the additional costs of that choice.

 Example of Marginal Thinking

 You have already studied for 2 hours and consider studying one more hour. You compare the extra benefit of studying with the extra cost of giving up an hour of free time.

 Incentive

Something that encourages or motivates people to behave a certain way.

 How do incentives influence behavior?

 People are more likely to do something when there is a reward and less likely to do something when there is a penalty.

Example of an Incentive

 A store offers a discount to encourage customers to buy more products.

Unintended Consequence

 A result of a decision or policy that was not planned or expected.

 How are incentives related to unintended consequences?

 When incentives change people's behavior, they can sometimes create unexpected results.

Example of an Unintended Consequence

 A government gives people a subsidy to grow a certain crop. More farmers grow it, causing there to be too much of the crop and prices to fall.

How can you evaluate a policy for unintended consequences?

 Think about how people might respond to the policy and consider both the intended and possible unexpected results.

Historical Standard of Living

 For most of human history, people lived with very low incomes and limited access to food, medicine, education, and other goods.

Economic Growth

 An increase in the amount of goods and services an economy can produce over time.

 Why has economic growth exploded in the last 200 years?

 New technologies, better education, increased productivity, industrialization, trade, investment, and improved institutions helped economies produce much more.

 Economic Growth and Human Prosperity

Economic growth has generally improved people's lives by increasing incomes and access to food, housing, education, healthcare, technology, and other goods and services.