Introduction to Economics: Foundations and Opportunity Cost

Vocabulary flashcards covering core foundational concepts in economics, including resource allocation, opportunity cost breakdown, marginal analysis rules, and sunk costs.

Economic Surplus

The total benefit minus the total cost associated with taking a specific action.

Scarcity

The economic condition that occurs because human wants are unlimited while available resources are limited.

Resource Allocation

The process of deciding what goods or services to produce, how to produce them using technologies and inputs, and for whom to produce them.

Opportunity Cost

The value of the single best alternative forgone when making a choice, equal to explicit cost plus implicit cost.

Explicit Cost

The direct monetary amount one needs to pay in order to undertake an option.

Implicit Cost

The net direct benefit given up by choosing a specific option instead of the best alternative.

Maximum Willingness to Pay

The maximum monetary amount an individual is willing to pay for a good or service, serving as a measure of subjective economic benefit.

Reservation Price

Another term for maximum willingness to pay, representing the maximum benefit a cup or unit brings.

Marginal Benefit

The additional benefit derived from the last unit of a good consumed or action taken.

Marginal Cost

The additional cost incurred from the last unit of a good consumed or action taken.

Decision Rule for Marginal Approach

The decision principle stating that quantity chosen should be the last unit where $MB \times \text{is greater than or equal to } MC$ (MB \break \rightleftharpoons MC or $MB \times \text{value}$), specifically where $MB \times \text{unit} \times \text{is } \times MB \times \text{ge } MC$ ($MB \times \text{or } MB \times \text{check}$) — evaluated sequentially starting at $Q = 1$.

Law of Diminishing Return

The economic principle observing that marginal benefit decreases as the total quantity consumed increases.

Sunk Cost

Costs that have already been paid or committed to be paid and cannot be recovered, which are excluded from economic cost and opportunity cost calculations.