Chapter 1 summary

Life is getting better:
- life expectancy
- health
- income
- education
- entertainment

Economics: the study of how we make a CHOICE (selections amongst alternatives) under SCARCITY (concepts that there is less available form nature than one desires)

1. Scarcity does not equal poverty
2. Scarcity necessitates RATIONING (allocating scarce goods to those who want them)
3. Scarcity leads to competitive behavior

Resources: human, physical, natural

Capital: human made resources, used to produce other goods/services

Guideposts to economic thinking:
1. opportunity cost (highest valued alternative which you sacrifice when making your choice)
2. individuals are rational (try to get more value at less cost)
3. incentives matter (change incentives, change behavior)
4. individuals make decisions at the margin, using a cost-benefit analysis
5. information helps us make better choices
6. beware of secondary effects (intentions may not equal the result)
7. the value of goods/services is subjective
8. to test a theory = to be able to predict real world events

POSITIVE economics vs. NORMATIVE economics

Pitfalls to avoid economic thinking:
1. ceteris paribus (other things constant)
2. good intentions don't guarantee desirable outcomes
3. association is NOT causation
4. fallacy of composition (what is good for 1 may not be good for ALL)