Chapter 1: Ten Principles of Economics - Problems and Applications

Vocabulary flashcards covering core economic concepts such as trade-offs, opportunity cost, sunk costs, equality, and efficiency from Chapter 1 practice problems.

Trade-off

The requirement of giving up one option or benefit to obtain another, such as a family choosing whether to buy a car or a recent graduate deciding whether to attend graduate school.

Vacation Cost-Benefit Analysis

The process of comparing non-monetary psychological benefits against dollar costs, such as airfare, hotel expenses, and forgone wages.

Opportunity Cost of Skiing

The value of the next best alternative given up to go skiing, such as forgone wages from a part-time job or lost study time at the library.

Opportunity Cost of Spending $\\text{\\textdollar}100$ Now

The $\\text{\\textdollar}5$ in interest that would be earned by placing the $\\text{\\textdollar}100$ in a bank account paying $5\%$ interest for $1\text{ year}$.

Sunk Cost in Product Development

An unrecoverable past investment, such as an initial $\\text{\\textdollar}5\text{ million}$ spent on development, which should be ignored when deciding whether to spend $\\text{\\textdollar}1\text{ million}$ more to complete a product with expected sales of $\\text{\\textdollar}3\text{ million}$.

Maximum Completion Expense

The highest amount a company should pay to finish developing a product, which equals its expected total sales of $\\text{\\textdollar}3\text{ million}$.

Standard Oil

A historical corporate entity that once owned $90\%$ of all U.S. oil refineries before being broken up by government action into several smaller companies.

Equality vs. Efficiency

The fundamental trade-off between distributing economic prosperity uniformly among society members (equality) and maximizing the benefits derived from scarce resources (efficiency).