🏛️Foundations of Microeconomics (Week 1)

Pareto Efficiency

A choice that maximizes efficiency while minimizing harm is called…

Tradeoffs, opportunity cost, marginality, incentives, and trade as a positive value

what are the five foundational concepts of microeconomics?

tradeoff

the concept that every choice has a sacrifice is called a…

~Example: I study for four hours, but I could’ve gone out to dinner with my family. The tradeoff is four hours of family time.

incentive, money, direct, indirect

motivation for doing something is called a(n)…

~Example: I go to a job to get paid money. My incentive is the [TERM].

[TERM] incentives describe primary motivations (if you do x, I’ll give you y) and [TERM] incentives describe secondary motivations (i do x for y, but really to get z)

opportunity cost, 8

the full cost/value of the best choice NOT taken is called the…

~Example: If I get 9 hours of sleep but could have gotten 8, 7, or 6 hours of sleep, the opportunity cost was [#] hours.

trade as a positive value

voluntary specialization generates benefits

marginality

the cost/benefit of the next increment is called…

comparative advantage

the ability of an agent to produce at a lower opportunity cost compared to another agent

absolute advantage

an agent’s ability to produce more of something than another agent

marginal thinking

evaluating whether the benefit of one more unit of something is greater than its costs

unintended consequence

unplanned result of an incentive, usually negative. I like to think of it as misalignment between an incentive and an outcome.

unlimited, limited, scarcity

why is there no such thing as a free lunch? Because wants are [TERM] and resources are [TERM], which creates [TERM]

choice, goals, scarcity

three factors that define economics

Observe

Step one of the economist’s scientific method— [TERM] phenomena

Hypothesis

Step 2 of the economist’s scientific method— Develop a [TERM]

Test, Model

Step 3 of the economist’s scientific method — [TERM] your hypothesis with a [TERM]

Positive statement

A [TERM statement] is about how something IS, not about how it SHOULD BE

e.g. “The national debt is $40T.”

Normative statement

A [TERM statement] is about how something SHOULD BE, not about how it IS

e.g “It’s good if the national debt is $100B.”

ceteris paribus

the concept that all else must be held equal in a model in order to approach accuracy

causality

it is incredibly difficult to prove [TERM] in an experiment because of external factors that may complicate results

Endogenous factors

Model variables that can be controlled for inside a model are called [TERM factors]

Exogenous factors, realistic

Model variables that cannot be accounted for, the more of these are added to a model (becoming endogenous) the more [TERM] the model