Part 1: Twelve Key Elements of Economics
Elements:
- Incentives Matter.
- All Choices Involve Costs.
- Decisions Are Made at the Margins.
- Voluntary Trade Promotes Economic Progress.
- Transaction Costs Are Obstacles to Trade.
- Prices Align Buyers and Sellers.
- Profits Are a Guide to Productivity.
- The “Invisible Hand” Promotes the General Welfare.
- Beware of Unintended Consequences.
- Value Creates Income and Wealth.
- Productivity Is the Key to High Living Standards.
- There Are Multiple Sources of Progress.
Introduction
Life is about choices, and economics is about how incentives affect those choices and shape our lives. Choices about our education, how we spend and invest, what we do in the workplace, and many other personal decisions will influence our well-being and quality of life. Moreover, the choices we make as voters and citizens affect the laws or “rules of the game,” and these rules exert an enormous impact on our freedom and prosperity. To choose intelligently, both for ourselves and for society, we must understand some basic principles about how people choose, what motivates their actions, and how their actions influence their personal welfare and that of others. Thus, economics is about human decision-making, the analysis of the forces underlying choice, and the implications for how societies work.
The economic way of thinking involves integrating key concepts into your thought processes. The section presents twelve concepts that are crucial for the understanding of economics, and will help you understand why some countries grow and achieve high income levels while others stagnate and remain poor. You will learn such things as the true meaning of costs, why prices matter, how trade enhances prosperity, and why production of things people value underpins our standard of living. In the subsequent parts of the book, these concepts will be used to address other vitally important topics.