Microeconomics entails the study of how people choose under .
Economists answer questions of choice by comparing the and of doing the activity in question.
We define B(x) as the dollar amount
C(x) is the value of all the resources you must in order to do x.
The of activity x is the price at which a person would be indifferent between doing x and not doing x.
If B(x) and C(x) happened to be equal, you would be between the two alternatives.
Economists believe that useful insights into our behavior can be gained by assuming that we act as if governed by the rules of .
The opportunity cost of x is the of all that must be to do x.
Not incurring a cost is the same as getting .
are costs that are beyond recovery at the moment a decision is made.
Sunk costs should always be in decision making.
In the all you can eat pizza experiment, it was the group who did not receive the refund that . This should not have been the case as they should have stopped eating when B(x), x being another slice of pizza, was . This was the case with the group that .
If you save $10 dollars on a $20 dollar radio with a 15 minute drive, the value of travelling 15 minutes to save $10 on a $1000 dollar tv would be .
When using the cost-benefit test, you should express costs and benefits in dollar terms. Comparing is not a fruitful way to think about decisions like these.
To answer the question of “Should I increase the level by which I am currently engaging in activity x?”, we must compare the and of an of activity.
The cost of an additional unit of activity is called the of the activity, and the benefit of an additional unit is called its .
The optimal amount of activity is the quantity for which the of conversation is just to its .
The downward slope of a marginal benefit curve reflects the fact that the value of an declines with the total amount of activity that has occurred thus far.
The four most common pitfalls in cost-benefit analysis are: failing to include costs; failing to ignore ; measuring costs and benefits as rather than values; and failing to recognise the difference between and cost and benefits.
A is a question about what policies or institutional arrangements lead to the best outcomes.
A positive question is a question about the of policies or institutional arrangements.
