Introduction to Economics: Rationality, Marginal Analysis, and Opportunity Cost

Vocabulary flashcards covering key concepts from Chapter 1 through Chapter 5 of the economics lecture notes, including opportunity cost, marginal analysis, economic agents, and sunk costs.

Economic Agents

Anybody who makes a decision, including rational consumers, rational firms, and rational individuals, by weighing the costs and benefits of possible choices to achieve their aims.

Rationality

The process of making choices to achieve one's goals using the information one believes to be true, regardless of whether the goals or beliefs are objectively accurate or agreed upon by others.

Opportunity Cost

The true cost of a choice, defined as the value that could have been gained by choosing the next best alternative instead.

Decision at the Margin

Evaluating choices incrementally by considering marginal cost and marginal benefit, which are the additional costs and benefits associated with a small extra amount of an action.

Sunk Cost Fallacy

The decision-making error of factoring in past, unrecoverable expenditures—such as money already spent on a ticket or a buffet—instead of focusing strictly on the next incremental choice.

Marginal Benefit

The additional value or pleasure associated with a small extra amount of an action, such as the specific benefit brought by each additional guest invited to a party.

Economic Value

The total overall value of an option, calculated by taking the direct net benefit of a choice and subtracting its opportunity cost (for example, choosing a movie offering $18$ of direct value over a concert offering $20$ yields an economic value of $-2$).

Economics

The study of human behavior that takes everyday actions performed without conscious thought and examines, mathematizes, and compares them.