A household faces many decisions. It must decide which household members do which tasks and what each memeberreceives in return: Who cooks dinner? Who does laundry? Who gets the extra dessert at dinner? Who gets to drive the car? In short, a household must allocate its scarce resources (time, dessert, car mileage) among its various members, taking into account each memeber's abilities, efforts, and desires. Like a household, a society faces many decisions. It must find some way to decide what jobs will be done and who will do them. It needs some people to grow food, other people to make clothing, and still others to design computer software. Once society has allocate the goods and services they produce. It must decide who will eat caviar and who will ear potatoes. It must decide who will drive a tesla and who will take the bus. The mangement of society's resources is important because resources are scare. Scarcity means that society has limited resources and therefore cannot produce all the goods and services people wish to have. Just as each member of a household cannot get everything she wants, each individual in a society cannot attain the highest standard of living to whcih she might aspire.
Economics is the study of how society manages its scarce resources. In most societies, resources are allocated not by an all-powerful dictator but through the combined choices of millions of households and firms. Economists, therefore, study how people make decisions: how much they work, what they buy, how much they save, and how they invest their saving. Economists also study how people interact with one another. For instance, they examine how the multitude of buyers and sellers of a good together determine the price at which the good is sold and the quantity that is sold. FInally, economists analyze the forces and trends that affet the economy as a whole, including the growth in average income, the fraction of the population that cannot find work, and the rate at which prices are rising. The study of economics has many facets, but it is unified by several central ideas. In this chapter, we look at Ten Principles of Economics. Don't worry if you don't understand them all at first or if you aren't completely convinced. We explore these ideas more fully in later chapters. The ten principles are introduced here to give you an overview of what economics is all about.
There is no mystery to what an economy is. Whether we are talking about the economy of Los Angeles, the United States, or the whole world, an economy is just a group of people dealing with one another as they go about their lives. Because the behavior of an economy reflects the behavior of the individuals who make up the economy, we being our study of economis with four principles about individual decision making. You may have heard the old saying, "There aint no such thing as free lunch." Grammar aside, there is much truth to this adage. TO get something that we like, we usually have to give up something else that we also like. Making decisions requires tading off one goal against another. Consider a student who must decide how to allocate her most valuable resourcce - her time. She can spnd all of her time studying economics, spend all of it studying psychology, or divide it between the two fields For every hour she studies one subject, she gives up an hour she could have used studying the other. And for every hour she spends studying, she gives up an hour she could have spent napping, bike riding, watching TV, or working at her part-time job for some extra spending money.
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