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IN THIS CHAPTER
YOU WILL . . .
Discuss how
incentives af fect
people’s behavior
Learn the meaning of
oppor tunity cost
Learn that
economics is about
the allocation of
scarce resources
Examine some of the
tradeof fs that people
face
See how to use
marginal reasoning
when making
decisions
The word economy comes from the Greek word for “one who manages a household.”
At first, this origin might seem peculiar. But, in fact, households and
economies have much in common.
A household faces many decisions. It must decide which members of the
household do which tasks and what each member gets in return: Who cooks dinner?
Who does the laundry? Who gets the extra dessert at dinner? Who gets to
choose what TV show to watch? In short, the household must allocate its scarce resources
among its various members, taking into account each member’s abilities,
efforts, and desires.
Like a household, a society faces many decisions. A society must 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 allocated people (as well as land, buildings, and machines) to various jobs,
T E N P R I N C I P L E S
O F E C O N O M I C S
3
Consider why trade
among people or
nations can be good
for everyone
Discuss why markets
are a good, but not
per fect, way to
allocate resources
Learn what
determines some
trends in the overall
economy