Term
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Definition
| Having more of one good thing usually means having less of another. |
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Term
Principle 2:
Cost-Benefit Analysis |
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Definition
| No action should be taken unless the marginal benefit is as great as the marginal cost. |
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Term
Principle 3:
Incentives Matter |
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Definition
| Comparing cost-benefit analysis enables us to predict actual decisions people make. |
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Term
Principle 4:
Comparative Advantage |
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Definition
| Everyone does best if they concentrate on their relatively most productive activity. |
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Term
Principle 5:
Increasing Opportunity Cost |
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Definition
| Resources with the lowest opportunity cost should be used before turning to those with higher opportunity costs. |
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Term
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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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Term
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Definition
| When the economic pie grows larger through efficiency, everyone can have a larger slice. |
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Term
Scarcity Principle
(a.k.a. No-Free Lunch) |
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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. |
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Term
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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. |
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Term
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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. |
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Term
| Principle of Comparative Advantage |
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Definition
| Everyone does best when each person (or each country) concentrates on the activities for which his/her opportunity cost is lowest. |
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Term
Principle of Increasing Opportunity Cost
(a.k.a. "Low-Hanging-Fruit principle) |
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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. |
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Term
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Definition
| Efficiency is an important social goal because when the economic pie grows larger, everyone can have a larger slice. |
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Term
Equilibrium Principle
(a.k.a. No-Cash-on-the-Table principle) |
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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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