ECON 101 Study Guide - Final Guide: Insurance Fraud, Vertical Integration, Moral Hazard

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sangriafox230

31 Jan 2017

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ECON 101 Full Course Notes

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Document Summary

Cost benefit principle: evaluate the full set of benefits and costs of any choice you face, and only pursue that choice if it yields benefits that are at least as large as the costs. Opportunity cost principle: the true cost of something is the most valuable alternative you must give up to get it. Your decisions should reflect this opportunity cost, rather than just the out of pocket financial costs. Marginal principle: break how many decisions down into a series of smaller, or marginal, decisions. {other choices, other people, other markets, other time} Your individual demand curve simply graphs your plans: the quantity you plan to buy, depending on the price, holding other things constant, following the core principles: Following the core principles: keep buying until: price = marginal benefit. Implies: your individual demand curve is your marginal benefit curve. Implies: a demand curve reveals marginal benefits: the theory of demand is the theory of marginal benefits.

Related Questions

One often-used definition of the term opportunity cost is that it is something that is given up when a choice is made. An example would be the money from working full-time given up by going to school. I suggest using the definition that opportunity cost is in terms of the foregone benefits of the next best alternative that could have been chosen. If the choice is for going to school instead of working full-time, then the opportunity cost would be all the benefits you would enjoy from working full-time in addition to the income you would earn. Using examples from your experiences and what you know, in what manners does the suggested change in definitions offer advantages in evaluating potential outcomes of choices either you or society have to make? How does this second opportunity cost definition help you make better decisions?

Marginal Benefit. List and explain at least one example where you actually have used or will use the marginal principle in your life (personal or professional). Here is an example of how I used this principle. I considered pursuing my doctorate degree. Having a doctorate would increase my salary here at Ohlone College. However, obtaining the doctorate has costs associated with it. When I looked at the marginal cost of getting one more degree with the marginal benefit of one more degree, I calculated that the marginal benefit was higher than the marginal cost, so I chose to go on for my doctorate.

NOTE: Do not use the example of pursuing a college degree, since I just covered that one. Come up with a different example.

IMPORTANT: The marginal principle applies to purchasing MORE of something you already have. In my example, I already have two college degrees. The decision is about whether to obtain another degree. Do not give an example of deciding whether or not to buy something you do not have. For example, deciding to buy a car if you do not already have one is not an example of marginal cost. That is an example of opportunity cost.

lilacmanatee362

Marginal benefit is the gain you receive for doing anything "one more time." If you owned, say, a cake shop, and you could sell an unlimited number of cakes for $15 apiece, then your marginal benefit for each additional cake you produced would be $15. In the real world, though, you'll always reach a limit on how much you can sell at a given price. If your market is saturated, you might have to drop your price to sell another.

If the marginal benefit is greater than marginal cost, a rational choice involves:

Group of answer choices

Less of the activity

No more of the activity

More of the activity

More or less, depending on the benefits of other activities