What does it mean to begin to think like an economic naturalist? Begin to thinks like an economic naturalist is start using a systematic way of examining the world by examining sunk cost. Now that you are becoming an economic naturalist from this point on,, discuss the key variables economists use to view their world and tell what each one represents? The key variables economists use to view their world is:
Scarcity witch necessitates that choices must be made. Making choices implies the existence of “opportunity costs”. The cost benefit principle: An individual (or a firm or a society) is better off taking an action if, and only if, the extra (marginal) benefit from taking the action is greater than the extra (marginal) cost. A rational person employs cost-benefit analysis in decision-making, which is also known as decision-making at the margin. Economic surplus: In general, maximizes make decisions in order to maximize economic surplus (the benefit of taking an action minus its cost). Opportunity cost of an action is = Direct cost Plus the best alternative forgone Less any savings derived from the activity.
According to the author, what Four Pitfalls do most non-economists mismanage as they attempt to make important lifetime decisions?
The four pitfalls according to the author are:
1. Measuring the Costs and Benefits as Proportions Rather than Absolute Dollar Amounts. 2. Ignoring Opportunity Costs
3. Failure to Ignore Sunk Costs
4. Failure to Understand the Average-Marginal Distinction Margins and averages are extremely important in studying and using microeconomics.
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