BU204_Krugman_Chapter 01

BU204_Krugman_Chapter 01 - > First Principles COMMON...

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>> HE ANNUAL MEETING OF THE AMERICAN Economic Association draws thou- sands 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, 60 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 economics of housework, and vice versa. Yet an economist who wanders into the wrong seminar and ends up listening to presentations on some unfamiliar topic is nonetheless likely to hear much that is familiar. The reason is that all economic analysis is based on a set of common principles that apply to many different issues. Some of these principles involve individ- ual choice —for economics is, first of all, about the choices that individuals 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 decisions involve making a choice among a 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 number of alternatives—limited because no one can have everything that he or she wants. Every question in economics at its most basic level involves individuals mak- ing choices. But to understand how an economy works, you need to understand more than how individuals make choices. None of us are Robinson Crusoe, alone on an island—we must make decisions in an environment that is shaped by the deci- sions of others. Indeed, in a modern econ- omy even the simplest decisions you One must choose. make—say, what to have for breakfast—are shaped by the decisions of thousands of other people, from the banana grower in Costa Rica who decided to grow the fruit you eat to the farmer in Iowa who provided the corn in your cornflakes. And because each of us in a market economy depends on First Principles
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A resource is anything that can be used to produce something else. Resources are scarce —the quantity available isn’t large enough to satisfy all productive uses. Individual choice is the decision by an individual of what to do, which necessar- ily involves a decision of what not to do. 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 Wal-Mart or Home Depot. There are thousands of dif-
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BU204_Krugman_Chapter 01 - > First Principles COMMON...

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