Economic principles 2-4

cost

everything you give up to get something

explicit costs

dollars you spend

Implicit costs

hidden costs, including opportunity costs

Opportunity cost

opportunity you passed up when you chose to do something

price

the dollar amount you pay

Cost-benefit analysis

weighing the benefits and costs of a choice

The law of unintended consequences

our choices will always have some unplanned consequences.

Incentive

a factor that encourages someone to act a certain way or do a certain action

positive incentives (“carrots”)

the hope of a reward

negative incentives (“sticks”)

the fear of a punishment

Rational

reasonable, respond to incentives, do CBAs, and consider future consequences

Margin

small difference

Marginal benefit

small benefit from a choice

Marginal cost

small cost from a choice