The problem of scarcity, cost, and choice “Woe is me” –Ophelia, Hamlet
Economics is the science of choice • But also, how to make the most out of life given limited resources • Thinking like an economist comes first: • Identifying incentives • Analyzing decision-makers’ perceptions of costs and benefits • Identifying opportunity costs
Rational Model • Economics asserts that people make choices based on their perceptions of what is best for them. The tools of economic reasoning help us understand what shapes peoples’ perceptions of the alternatives they face. • People’s choices among considered alternatives reflect their perceptions of the costs and benefits – to them – of the alternatives they face. • The key to understanding human behavior lies in identifying incentives. • Incentives are rewards or punishments that influence people’s actions. • When incentives change, people’s behavior changes in predictable ways.
1. Scarcity • We live in a world of relative scarcity. • Scarcity exists when resources have more than one valuable use.
- Fall '16
- john mull
- Economics, History, economic assumptions