[ECON 101] - Final Exam Guide - Ultimate 22 pages long Study Guide!

• School: U of M
• Department: Economics
• Course: ECON 101
• Professor: Justin Wolfers

Document Summary

Ex) coffee shop sells for , you should buy if the benefit to you is at least , you really like coffee and this coffee shop makes good coffee, so you"ll buy it. But your friend who hates coffee gets no benefit so she won"t buy it. Both are responding to the balance of benefits, minus costs: the 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. Costs of her choice costs of her next best alternative = opportunity cost: the marginal principle: break how many decisions down into a series of smaller, or marginal, decisions. Evaluate whether the extra benefit from hiring one more worker exceeds the extra cost of that extra worker. Marginal benefit the extra benefit you get from one more worker. Marginal cost extra cost of that worker.