Chpt1 Thinking like an Economist

Question	Answer
the COST-BENEFIT approach	If B(x)>C(x), do x; otherwise don't. When using this test, you should express B and C in ABSOLUTE euro terms.
RESERVATION PRICE	The minimum price. The price at which a person would be indifferent between doing x and not doing x. B(x)=C(x)
OPPORTUNITY COST	The value of all that must be SACRIFICED to do the activity.
SUNK COSTS	Costs that are beyond recovery at the moment the decision is made. These costs should be ignored in the C-B analysis.
MARGINAL COST	The increase in Total Cost that results from carrying out one additional unit of an activity.
MARGINAL BENEFIT	The increase in Total Benefit that results from carrying out one additional unit of an activity.
AVERAGE BENEFIT/COST	The Average Benefit/Cost of undertaking n units of an activity is the Total Benefit/Cost of an activity divided by n.
EXTERNAL COSTS	A cost that falls on people who are not directly involved in the activity.
POSITIVE QUESTION	A question about a consequence of specific policies or institutional arrangements.
NORMATIVE QUESTION	A question about what policies or institutional arrangements lead to the best outcomes.

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	Created by govtana over 9 years ago