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Questions and Answers
People Face ______ Due to scarcity, individuals must make choices and trade-offs between competing alternatives.
Trade-offs
Gaining something requires giving up something else. 'there ain’t no such thing as a free ______'
lunch
Classic trade-off is between 'guns and ______'
butter
Another trade-off society faces are between efficiency and ______
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Efficiency refers to the size of the economic pie and equality refers to how the pie is divided into individual ______
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Opportunity Cost (The cost of something is what you give up to get it) - The cost of a decision is not only the explicit cost but also the value of the next best alternative that must be ______
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College athletes who can earn millions if they drop out of school and play professional sports are well aware that their opportunity cost of attending college is very ______
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Rational people – people who systematically and purposely do the best they can to achieve their objectives, given the available opportunities Economist use the term marginal change to describe the small incremental adjustment to the plan of ______
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A rational decision maker takes an ______ if and only if the marginal benefit of the action exceeds the marginal cost
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Understanding incentives is essential for predicting how people will ______
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Changes in costs or benefits influence behavior and ______
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Incentives are key in analyzing how ______ work
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Study Notes
Scarcity and Choices
- Individuals must make choices due to scarcity.
- Every choice involves a trade-off, meaning giving up something to gain another.
- "There ain't no such thing as a free lunch" signifies that everything has a cost.
Classic Trade-offs
- A classic trade-off is between "guns and butter".
- Society faces a trade-off between efficiency and equality.
- Efficiency focuses on maximizing the size of the economic pie.
- Equality deals with how the economic pie is divided among individuals.
Opportunity Cost
- The opportunity cost of a decision is the value of the best alternative forgone.
- College athletes face high opportunity costs of attending college, given potential professional sports earnings.
- Rational people make decisions to maximize their well-being based on available opportunities.
Marginal Change and Rational Decision-Making
- Marginal change refers to small adjustments in a plan of action.
- Rational decision-makers choose an action if the marginal benefit outweighs the marginal cost.
Incentives and Behavior
- Incentives play a crucial role in predicting human behavior.
- Changes in costs or benefits influence actions and decisions.
- Understanding incentives is vital for analyzing how markets function.
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Description
Test your knowledge on the 10 fundamental principles related to how individuals make decisions in economics, such as facing trade-offs and understanding the concept of scarcity. Explore key principles derived from microeconomics that influence individual behaviors and choices.
