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Principles of Microeconomics
Core Principles (1-7)
14
Economics
Undergraduate 1
01/13/2012

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Cards

Term
Principle 1:

Scarcity
Definition
Having more of one good thing usually means having less of another.
Term
Principle 2:

Cost-Benefit Analysis
Definition
No action should be taken unless the marginal benefit is as great as the marginal cost.
Term
Principle 3:

Incentives Matter
Definition
Comparing cost-benefit analysis enables us to predict actual decisions people make.
Term
Principle 4:

Comparative Advantage
Definition
Everyone does best if they concentrate on their relatively most productive activity.
Term
Principle 5:

Increasing Opportunity Cost
Definition
Resources with the lowest opportunity cost should be used before turning to those with higher opportunity costs.
Term
Principle 6:

Equilibrium
Definition
A market in equilibrium leaves no unexploited opportunities for individuals but may not exploit all gains achievable through collective action.
Term
Principle 7:

Efficiency
Definition
When the economic pie grows larger through efficiency, everyone can have a larger slice.
Term
Scarcity Principle
(a.k.a. No-Free Lunch)
Definition
Although we have boundless needs and wants, the resources available to us are limited. So having more of one good usually means having less of another.
Term
Cost-Benefit Principle
Definition
An individual (or a firm or society) should take an action if, and only if, the extra benefits from taking the action are at least as great as the extra costs.
Term
Incentive Principle
Definition
A person (or firm or society) is more likely to take an action if the benefit rises, and less likely to take it if the cost rises.
Term
Principle of Comparative Advantage
Definition
Everyone does best when each person (or each country) concentrates on the activities for which his/her opportunity cost is lowest.
Term
Principle of Increasing Opportunity Cost
(a.k.a. "Low-Hanging-Fruit principle)
Definition
In expanding the production of any good, first employ those resources with the lowest opportunity cost, and only afterward turn to resources with higher opportunity costs.
Term
Efficiency Principle
Definition
Efficiency is an important social goal because when the economic pie grows larger, everyone can have a larger slice.
Term
Equilibrium Principle
(a.k.a. No-Cash-on-the-Table principle)
Definition
A market in equilibrium leaves no unexploited opportunities for individuals but may not exploit all gains achievable through collective action.
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