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>> he annual meeting of the Canadian Economics Association draws hun- dreds of economists, young and old, famous and obscure. There are booksellers, business meetings, and quite a few job inter- views. But mainly the economists gather to talk and listen. During the busiest times, 20 or more presentations may be taking place simultaneously, on questions that range from the future of the stock market to who does the cooking in two-earner families. What do these people have in common? An expert on the stock market probably knows very little about the eco- nomics of housework, and vice versa. Yet an economist who wanders into the wrong semi- nar and ends up listening to presentations on some unfa- miliar topic is nonetheless like- ly to hear much that is famil- iar. The reason is that all eco- nomic analysis is based on a set of common principles that apply to many different issues. Some of these principles involve individual choice —for economics is, first of all, about the choices that individu- als make. Do you choose to work over the summer or take a backpacking trip? Do you buy a new CD or go to a movie? These deci- sions involve making a choice among a lim- ited number of alternatives—limited COMMON GROUND What you will learn in this chapter: A set of principles for under- standing the economics of how individuals make choices A set of principles for under- standing how individual choices interact Richard Hamilton Smith/Corbis T chapter 5 1 because no one can have everything that he or she wants. Every question in economics at its most basic level involves individuals making choices. But to understand how an economy works, you need to understand more than how individuals make choices. None of us is Robinson Crusoe, alone on an island—we must make decisions in an environment that is shaped by the decisions of others. Indeed, in a modern economy even the sim- plest decisions you make—say, what to have for breakfast—are shaped by the decisions of One must choose. thousands of other people, from the banana grower in Costa Rica who decided to grow the fruit you eat to the farmer in Saskatchewan who provided the wheat in your toast. And because each of us in a mar- ket economy depends on so many others— and they, in turn, depend on us—our choic- First Principles 500_12489_CH01_5-20 3/7/05 3:41 PM Page 5
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6 PART 1 WHAT IS ECONOMICS? Individual Choice: The Core Of Economics Every economic issue involves, at its most basic level, individual choice —decisions by an individual about what to do and what not to do. In fact, you might say that it isn’t economics if it isn’t about choice. Step into a big store like a Sears or Canadian Tire. There are thousands of differ- ent products available, and it is extremely unlikely that you—or anyone else—could afford to buy everything that you might want to have. And anyway, there’s only so much space in your dorm room or apartment. So will you buy another bookcase or a mini-refrigerator? Given limitations on your budget and your living space, you must
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This note was uploaded on 09/04/2008 for the course ECON 541 taught by Professor Cumby during the Fall '08 term at Georgetown.

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CH01 - 500_12489_CH01_5-20 3/7/05 3:41 PM Page 5 > First...

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