Chapter 1 of 10All chapters
Chapter 1 of 10
Scarcity and choice
The starting assumption.
Everything has a cost
Resources are limited and wants are not, so every choice forgoes something. Opportunity cost is the value of the best alternative given up, and it is the discipline's central idea.
- Free time is not free: it costs whatever else you would have done.
- Sunk costs are irrelevant to the next decision, however painful that feels.
Margins
Decisions are made at the margin: not whether to have coffee, but whether to have one more. Most economic reasoning is about the next unit rather than the total.