AP Microeconomics Flashcards: Cost-Benefit Analysis
Written by AP Content Team, Verified for 2026 AP Exams, Last updated: May 2026
Review key ideas with interactive flashcards. This set includes 11 cards to help you master important concepts.
What is meant by the 'total economic costs' of a decision?
Total economic costs include all opportunity costs, whether they are implicit (forgone alternatives) or explicit (direct payments).
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What is meant by the 'total economic costs' of a decision?
Total economic costs include all opportunity costs, whether they are implicit (forgone alternatives) or explicit (direct payments).
What is opportunity cost?
Opportunity cost is the value of the next-best alternative that must be forgone to pursue a certain action.
What metric represents total benefits for consumers, and what represents it for firms?
For consumers, total benefits form the metric 'utility,' while for firms, total benefits are measured as total revenue.
How is a final decision made when comparing total benefits and total costs?
A decision is made by choosing the option where the total benefits are greater than or equal to the total costs, aiming to maximize net benefits.
At what point in a cost-benefit analysis are total net benefits maximized?
Total net benefits are maximized at the optimal choice, where the difference between total benefits and total costs is greatest.
When must a decision be evaluated by looking at total benefits and total costs instead of marginal analysis?
Decisions that cannot be broken down into smaller increments must be evaluated by looking at total benefits and total costs.
A firm calculates that producing 100 widgets will generate $1,000. What economic term does this $1,000 represent in a cost-benefit analysis?
The $1,000 represents the total revenue for the firm, which is the metric used for its total benefits.
What are total net benefits?
Total net benefits are the difference between total benefits and total costs.
If a student chooses to study for an exam for one hour instead of working a part-time job, what does the money they would have earned represent?
The potential earnings from the part-time job represent the opportunity cost associated with the choice to study.
What is the key difference between decisions that permit marginal analysis and those that require total cost-benefit analysis?
Some decisions can be broken down into increments, permitting analysis of marginal benefit and cost, while others cannot and must be evaluated in their totality.
How do rational agents factor opportunity costs into their decisions?
Rational agents consider both implicit and explicit opportunity costs when calculating the total economic costs of any decision.