Full cost money plus other resource costs implicit

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Full Cost: Money plus other resource costs. Implicit Cost: Best alternative use value of already possessed resources. Explicit Cost: Transfer, or reduction in value, of property rights in an 67
exchange. External Cost: Reduction of options of uses of resources owned by other people and for which no compensation is made to the other people. Sunk Cost: Past cost of a past action; not a cost of current or future choice. CHOICES REFLECT PRINCIPLES OF PERSONAL PREFERENCES Individuals Are the Choosers If you couldn’t choose, you’d have no costs! But when free to choose, you don’t choose at random. Your choices reflect patterns of preferences. We will always look at the behavior and choices of individuals . If you ask, “Why does the government or General Electric or some union behave as it does?” you should ask instead, “Why do the decision makers decide as they do?” This direction of attention to individuals does not mean that people are solely self-interested and self-seeking without regard to other people. But we regard individuals as the basic units of choice, no matter what are a person’s motives or ultimate objectives. The likelihood of a particular choice depends on its cost and personal worth. And a bigger “basket” will, at the same cost, be chosen over a smaller one. “More is preferred to less.” But our choices aren’t typically the easy choices between bigger and smaller baskets. Instead, we must choose between combinations of goods. They differ in the relative amounts of various goods. One has more “oranges” but fewer “apples.” One area has nicer indoor living, while another has better outdoor activities. The fundamental premise is that for each person there are several other equally preferred and equally costly (affordable) combinations of goods or activities among which he can choose. If the cost of any of the components in that combination should change, you’d shift to a new equally costly, but possibly better or worse, combination. In other words, you’d alter your lifestyle, behavior, and the goods you buy. If we know of some reliable regularities in personal preferences, we can deduce the adjustments to changes in costs and opportunities, whether in [print edition page 40] domestic or in business activities. Some reliably consistent features, called a “pattern of personal preferences,” have been identified. The preferences are about more of one good relative to more of other goods . 68
The principles are not about which goods we prefer over other goods. No such absolute ranking of goods according to importance or purpose is known. Instead, what is known are some preferences for amounts of one good relative to other goods— how much more or less of one good is substitutable for how much more or less of other goods. These principles apply to people living in socialist, as well as to those in capitalist, systems.

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