Unit 1 key points - Individual choice is the decision by an...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Individual choice is the decision by an individual of what to do, which necessarily involves a decision of what not to do. TABLE 1-1 Principles That Underlie the Economics of Individual Choice 1. Resources are scarce. 2. The real cost of something is what you must give up to get it. 3. “How much?” is a decision at the margin. 4. People usually exploit opportunities to make themselves better off. 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. The real cost of an item is its opportunity cost : what you must give up in order to get it. You make a trade-off when you compare the costs with the benefits of doing something. Decisions about whether to do a bit more or a bit less of an activity are marginal decisions . The study of such decisions is known as marginal analysis . An incentive is anything that offers rewards to people who change their behavior. Individual Choice: Summing It Up We have just seen that there are four basic principles of individual choice: _ Resources are scarce. It is always necessary to make choices. _ The real cost of something is what you must give up to get it. All costs are opportunity costs. _ “How much?” is a decision at the margin. Usually the question is not “whether,” but “how much.” And that is a question whose answer hinges on the costs and benefits of doing a bit more. _ People usually exploit opportunities to make themselves better off. As a result, people will respond to incentives. So are we ready to do economics? Not yet— because most of the interesting things that happen in the economy are the result not merely of individual choices but of the way in which individual choices interact . ➤➤ Q U I C K R E V I E W
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 05/18/2010 for the course BU204 MACROECONO taught by Professor Joseruiz during the Spring '09 term at Kaplan University.

Page1 / 3

Unit 1 key points - Individual choice is the decision by an...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online