Robert H. Frank,
Cornell University
Ian C. Parker,
University of Toronto
| External cost of an activity | A cost that is generated by an activity and that falls on people who are not directly involved in the activity.
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| Interest | The sum paid by a borrower to a lender in addition to repayment of the principal amount of a loan, to compensate the lender for the opportunity cost of not having the use of the principal during the loan period.
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| Microeconomics | The study of how people choose under conditions of scarcity.
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| Normative question | A question regarding the action that should be taken in a particular situation, in relation to given ethical criteria.
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| Opportunity cost | The cost of taking an action, as measured by the benefit forgone by not taking the best alternative action.
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| Positive question | A question regarding the probable consequences of taking a specific action in a particular situation.
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| Present-aim standard of rationality | A theory that says rational people act efficiently in pursuit of whatever objectives they hold at the moment of choice.
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| Reservation price of activity x | The price at which a person would be indifferent between doing x and not doing x.
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| Self-interest standard of rationality | A theory that says rational people consider only costs and benefits that accrue directly to themselves.
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| Sunk costs | Past expenditures which can no longer be recovered at the time of making a decision.
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2002 McGraw-Hill Higher Education