Scarce resources, endless wants and choices at every turn. Learn the core words economists use to weigh costs and benefits.
These terms were extracted from Principles of Microeconomics by Dr. Emma Hutchinson, University of Victoria, eCampusOntario which is licensed under a Creative Commons Attribution 4.0 International License. Based on Principles of Microeconomics by OpenStax, licensed under CC BY 4.0.
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the way in which the work required to produce a good or service is divided into tasks performed by different workers
A modern economy displays a division of labor, in which people earn income by specializing in what they produce and then use that income to purchase the products they need or want.
the study of how humans make choices under conditions of scarcity
At its core, Economics is the study of how humans make decisions in the face of scarcity.
when the average cost of producing each individual unit declines as total output increases
Third, specialization allows businesses to take advantage of economies of scale, which means that for many goods, as the level of production increases, the average cost of producing each individual unit declines.
when human wants for goods and services exceed the available supply
As decision makers, we have to make choices because of scarcity: our resources are finite.
when workers or firms focus on particular tasks for which they are well-suited within the overall production process
The reason why is something called the division and specialization of labor, a production innovation first put forth by Adam Smith in his book, The Wealth of Nations (See Figure 2).
the direct cost of an action, usually involves a cash transaction or a physical transfer of resources.
With that analysis it seems like you should go, but so far we have only considered the explicit costs of the experience.
costs that have been paid that cannot be recovered
Sunk costs aren’t exclusive to gym memberships, in fact, the sunk cost fallacy is common in big business and government.
a sacrifice of resources (time, money etc.) to achieve a certain benefit
As decision makers, we have to make trade-offs on what we do with finite resources.
the maximum amount of resources a consumer is willing to lose to achieve a certain benefit
As economists, we want to measure the happiness you will get from this experience by finding your maximum willingness to pay.
The difference between the marginal benefits and marginal costs of an action
This is why we look at the marginal net benefit of a decision, rather that the total.