4. Opportunity cost
The opportunity cost of an item is what you give up to get that item.
Attend university vs. university-age athletes
Attend university vs. Bill Gates
2. In many situations, People make decisions by comparing costs and benefits at the margin.
For example, consider an airline deciding how much to charge passengers who fly standby. Image a plane is about to take off with ten empty seats, and a standby is willing to pay $300. The airline can raise its profits by thinking at the margin. Although the average cost of flying a passenger is $500, the marginal cost is merely the cost of the bag of peanuts and can of soda for the extra customer. As long as the standby pays more than the marginal cost, selling him a ticket is profitable
• Because households and firms look at prices when
deciding what to buy and sell, they unknowingly take into account the social costs of their actions. • As a result, prices guide decision makers to reach outcomes that tend to maximize the welfare of society as
As we will see, the efforts of price on behavior of buyers and sellers in a market, which is crucial for understanding how the economy works.
2. Public policymakers should never forget about incentives, for many policies changes the costs or benefits that people face and, therefore, change behavior. When policymakers fail to consider how their policies affect incentives, they often end up with results they did not expect. For example, a tax on gasoline, encourages people to drive smaller, more fuel-efficient cars. It also encourages people to take public transportation rather than drive and to live closer to where they work. So, if policy changes incentives, it will cause people to alter their behavior.
3. Individuals and firms can make better decisions by thinking at the margin.
A rational decision-maker takes an action if and only if the marginal profit of this action exceeds the marginal costs.
a whole.
2.Adam Smith made the observation that households and firms interacting in markets act as if guided by an “invisible hand” that led them to desired market outcomes for prices are the instrument with which the “invisible hand” directs economic activities.
▪ B. How people interact ▪ Principles #5: Trade can make everyone
better off
▪ Countries as well as families benefit from the ability to trade with one another. Trade allows countries to specialize in what they do best and to enjoy a greater variety of goods and services
▪ Principle #6: Markets are usually a good way to organize economic activity. 1.A market economy is an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services.
• Households decide which firm to work for and what to buy with their incomes.
• Firms decide whom to hire and what to make.
•These firms and households interact in the marketplace, where prices and self interests guide their decisions.
1. Decisions in life are rarely black and white but usually involve shades of grey. Say, at dinnertime, the decision you face is not between fasting or eating like a pig, but whether to take that extra spoonful of mashed potatoes. Economists use the term Marginal changes to describe small, incremental adjustments to an existing plan of action. “Margin” means “edge”, so marginal changes are adjustments around the edges of what you are doing
For athletes can earn million if they drop out of university and play professional sports or professional microsoft desRational people think at the margin
Principles #4: People respond to incentives. 1.Because people make decisions by comparing costs and benefits, their behavior may change when costs and benefits change. That means people respond to incentives.