PART ONE INTRODUCTION it must also allocate the output of goods and services that they produce. It must decide who will eat caviar and who will eat potatoes. It must decide who will drive a porsche and who will take the bus The management of societys resources is important because resources are scarcity scarce. Scarcity means that society has limited resources and therefore cannot pro- the limited nature of society's duce all the goods and services people wish to have Just as a household canno resources give every member everything he or she wants, a society cannot give every indi- vidual the highest standard of living to which he or she might aspire Economics is the study of how society manages its scarce resources. In most he study of how society manages its societies, resources are allocated not by a single central planner but through the combined actions of millions of households and firms. economists therefore study how people make decisions: how much they work, what they buy, how much they save, and how they invest their savings. Economists also study how people inter act with one another. For instance, they examine how the multitude of buyers and sellers of a good together determine the price at which the good is sold and the quantity that is sold. Finally, economists analyze forces and trends that affect the economy as a whole, including the growth in average income, the fraction of the population that cannot find work, and the rate at which prices are rising Although the study of economics has many facets, the field is unified by sev- eral central ideas. In the rest of this chapter, we look at Ten Principles of Economics These principles recur throughout this book and are introduced here to give you an overview of what economics is all about. You can think of this chapter as a"pre- view of coming attractions. HOW PEOPLE MAKE DECISIONS There is no mystery to what an"economy"is. Whether we are talking about the economy of Los Angeles, of the United States, or of the whole world, an economy is just a group of people interacting with one another as they go about their lives Because the behavior of an economy reflects the behavior of the individuals who make up the economy, we start our study of economics with four principles of in- dividual decisionmaking PRINCIPLE 1: PEOPLE FACE TRADEOFFS The first lesson about making decisions is summarized in the adage: There is no such thing as a free lunch. To get one thing that we like, we usually have to give up another thing that we like. Making decisions requires trading off one goal against another Consider a student who must decide how to allocate her most valuable re- source--her time She can spend all of her time studying economics; she can spend all of her time studying psychology; or she can divide her time between the two fields. For every hour she studies one subject, she gives up an hour she could have used studying the other. And for every hour she spends studying, she gives up an hour that she could have spent napping, bike riding, watching TV, or working at her part-time job for some extra spending money4 PART ONE INTRODUCTION it must also allocate the output of goods and services that they produce. It must decide who will eat caviar and who will eat potatoes. It must decide who will drive a Porsche and who will take the bus. The management of society’s resources is important because resources are scarce. Scarcity means that society has limited resources and therefore cannot pro￾duce all the goods and services people wish to have. Just as a household cannot give every member everything he or she wants, a society cannot give every indi￾vidual the highest standard of living to which he or she might aspire. Economics is the study of how society manages its scarce resources. In most societies, resources are allocated not by a single central planner but through the combined actions of millions of households and firms. Economists therefore study how people make decisions: how much they work, what they buy, how much they save, and how they invest their savings. Economists also study how people inter￾act with one another. For instance, they examine how the multitude of buyers and sellers of a good together determine the price at which the good is sold and the quantity that is sold. Finally, economists analyze forces and trends that affect the economy as a whole, including the growth in average income, the fraction of the population that cannot find work, and the rate at which prices are rising. Although the study of economics has many facets, the field is unified by sev￾eral central ideas. In the rest of this chapter, we look at Ten Principles of Economics. These principles recur throughout this book and are introduced here to give you an overview of what economics is all about. You can think of this chapter as a “pre￾view of coming attractions.” HOW PEOPLE MAKE DECISIONS There is no mystery to what an “economy” is. Whether we are talking about the economy of Los Angeles, of the United States, or of the whole world, an economy is just a group of people interacting with one another as they go about their lives. Because the behavior of an economy reflects the behavior of the individuals who make up the economy, we start our study of economics with four principles of in￾dividual decisionmaking. PRINCIPLE #1: PEOPLE FACE TRADEOFFS The first lesson about making decisions is summarized in the adage: “There is no such thing as a free lunch.” To get one thing that we like, we usually have to give up another thing that we like. Making decisions requires trading off one goal against another. Consider a student who must decide how to allocate her most valuable re￾source—her time. She can spend all of her time studying economics; she can spend all of her time studying psychology; or she can divide her time between the two fields. For every hour she studies one subject, she gives up an hour she could have used studying the other. And for every hour she spends studying, she gives up an hour that she could have spent napping, bike riding, watching TV, or working at her part-time job for some extra spending money. scarcity the limited nature of society’s resources economics the study of how society manages its scarce resources