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Econ Ch1
| Term | Definition |
|---|---|
| Financial knowledge | the ability to understand & use personal finance information |
| Financial well-being | having control over current finances, feeling confident about future financial goals, able to absorb financial shock, & having financial freedom to make choices to enjoy life |
| Financial risk tolerance | your willingness to engage in financial endeavors with uncertain outcomes |
| Feelings of control | the amount of control you have when making financial decisions |
| Human capital | your ability & willingness to work, learn, earn, & make wise decisions about saving & investing & other resources |
| Social capital | your personal & professional connections with people |
| Production Possibility Frontier | an economic tool that shows different combinations of outputs than can occur with given resources; often a trade-off between goods due to scarcity |
| Marginal cost | added expense associated with producing or obtaining another unit |
| Marginal benefit | additional enjoyment from consuming another unit |
| Risk | doing something that involves the possibility of a gain or loss |
| Investment returns | wealth or income generated by investing |
| Risk perception | the cognitive evaluation of potential gains or losses associated with a course of action |
| Risk preference | wanting something else compared to the available option |
| Specific | 'S' stands for in SMART (Financial Goals) |
| Measurable | 'M' stands for in SMART (Financial Goals) |
| Attainable | 'A' stands for in SMART (Financial Goals) |
| Relevant | 'R' stands for in SMART (Financial Goals) |
| Timely | 'T' stands for in SMART (Financial Goals) |
| Past-oriented | someone who typically has a negative association with finances (time perspective) |
| Present-oriented | someone who usually pays for experience; struggle to reach future goals (time perspective) |
| Future-oriented | someone who is goal-focused; may struggle to task risks (time perspective) |
| Incentives | external factors that encourage or discourage certain behaviors |
| Heuristics | decisions made based on past experiences or something learned that is applied to new situations |
| Status Quo Bias | someone's personal preference for keeping things as they are |
| Loss aversion | people who dislike losing; tend to avoid risk |
| Optimism Bias | people who think that they will rarely experience loss; tend to risk more |
| Confirmation Bias | ignoring evidence that investment success is pure chance; overconfidence that could impact future risk taking |
| Budget constraint | all possible consumption combinations of goods that someone can afford, given the prices of goods, when ALL income is spent; the boundary of the opportunity set |
| Opportunity set | all possible consumption combinations of goods that someone can afford given the prices of goods and the individuals income (all income does not need to be spent) |
| Opportunity cost | indicates what people must give up to obtain what they desire |
| Marginal analysis | examining the benefits and costs of choosing a little more or a little less of a good |
| Utility | satisfaction, usefulness, or value one obtains from consuming goods and servicesL |
| Law of diminishing marginal utility | as a person receives more of a good, the additional (or marginal) utility from each additional unit of the good declines |
| Sunk costs | costs that were incurred in the past and cannot be recovered |
| Law of diminishing returns | as additional increments of resources to producing a good or service are added, the marginal benefit from those additional increments will decline |
| Comparative advantage | when a country can produce a good at a lower opportunity cost than another country |
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