Chapter 1: The Four Core Principles

are the incentires that shape decisions

Cost Benefit Principle

Total Benefits - Total Cost

Economic Surplus

Willigness To Pay (WTP)

the max amount a customer will spend for a single unit of a good or service before walking away

where people make different choices based on how identical information is presented

Framing Effect

the true cost of something in the next best alternative you have to give up to get it

Opportunity Cost

the gap b/w limited resources and unlimited wants

Scarcity

Cannot be reversed

Sunk Cost

shows the different sets of output that are attainable with your scarce resoruces

Production Possibility Frontier (PPE)

decisions about quantities are best made incrementally

Marginal Principle

the extra benefit from one extra unit

Marginal Benefit

the extra cost from one extra unit

Marginal Cost

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

Rational Rule

the best choice depends on your other choises or expectations for the future

Interdependence Principle