The Four Core Principles of Economics

Flashcards covering the core principles of economics to aid in understanding key concepts such as cost-benefit analysis, opportunity cost, and decision-making frameworks.

Cost-Benefit Principle

Costs and benefits are the incentives that shape decisions, guiding individuals to pursue choices with greater benefits than costs.

Opportunity Cost

The opportunity cost of something is the next best alternative you have to give up to get it.

Marginal Principle

Decisions about quantities are best made incrementally, weighing marginal benefits against marginal costs.

Interdependence Principle

Your best choice depends on your other choices, the choices others make, developments in other markets, and future expectations.

Economic Surplus

The total benefits minus the total costs flowing from a decision, reflecting how much a decision has improved your well-being.

Sunk Cost

A cost that has been incurred and cannot be reversed; good decision makers ignore sunk costs.

Framing Effect

When a decision is affected by how a choice is described or framed, often altering perceptions and choices.

Willingness to Pay

The maximum amount an individual is prepared to pay for a benefit or to avoid a cost.

Scarcity

The limited nature of society's resources, which necessitates trade-offs in decision-making.

Economic Actor

Individuals or entities that make economic decisions and participate in the market.