Work through the list without notes. If you cannot do a statement, follow its link, then come back. Guide = study guide; Practice = practice questions.
Understanding
- I can define opportunity cost as the value of the next-best alternative given up, and explain why it is not the sum of all rejected options. (Guide: “Opportunity cost: the next-best alternative”; Practice Q1)
- I can tell an explicit cost from an implicit cost and give an example of each. (Guide: “Explicit and implicit costs”; Practice Q2)
- I can explain that total benefit is utility for a consumer and total revenue for a firm. (Guide: “What cost-benefit analysis means”)
- I can explain why money already spent and not recoverable, or a cost paid whichever option is chosen, is not a cost of the decision. (Guide: Worked example 1(a))
Calculation and graphing
- I can add explicit and implicit costs to find the total economic cost of a decision. (Guide: Worked example 1; Practice Q4, Q6(b))
- I can calculate net benefit for every option in a table and pick the largest. (Guide: Worked example 2; Practice Q3)
- I can find marginal benefit and marginal cost as changes in the totals, and show they lead to the same choice. (Guide: Worked example 2(b); Practice Q7(a))
- I can draw total benefit and total cost curves and show the best choice as the largest vertical gap between them. (Guide: Figure 1; Practice Q5)
Reasoning
- I can tell a “how much” decision from an all-or-nothing decision and choose the right method for each. (Guide: “Two kinds of decision”; Practice Q6(a))
- I can explain why the option with the largest total benefit, or any positive net benefit, is not automatically the best choice. (Guide: “Common misconceptions”; Practice Q5(c))
- I can explain how leaving out an implicit cost can lead to the wrong decision. (Guide: Worked example 1(c); Practice Q4)
- I can explain why a cost that is the same for every quantity affects whether to act but not how much to do. (Practice Q7(c))
All ticked? Move on to Topic 1.6, Marginal Analysis and Consumer Choice, or return to the course roadmap.