2. Decision making

These flashcards cover key concepts from the lecture on decision making and economic models, providing definitions and understanding of important economic terms.

Opportunity Cost

The value of the highest alternative given up when choosing something.

Economic Cost

The sum of direct (financial) costs of a choice and its opportunity cost.

Net Benefit

Willingness to pay minus economic cost

Economic Model

A simplified representation of reality used to understand, analyze and predict economic phenomena.

Equilibrium

A self-perpetuating situation in which there is no tendency for change unless influenced by external forces.

Endogenous Variables

Variables whose values are determined by relationships built into the model.

Exogenous Variables

Variables whose values are determined outside the model.

Ceteris Paribus

A Latin phrase meaning 'holding other things equal', used to isolate the relationship between two variables.

Malthusian Model

A model that explains how population growth can outstrip technological improvements in agriculture, leading to stagnation in living standards.