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Economics is the study of how humans make decisions in the face of scarcity.Principle 2: The cost of something is what you give up to get it Because people face trade-offs, making decisions requires comparing the costs and benefits of alternative courses of action.Principle 5: Trade can make everyone better off The Americans and the Japanese are often mentioned in the news as being competitors to Europeans in the world economy.For example the ultimate scarce resource is time- everyone, rich or poor, has just 24 hours in the day to try to acquire the goods they want.When people are grouped into societies, they face different kinds of trade-offs.In some ways this is true, because American and Japanese firms do produce many of the same goods as European firms.In fact, the opposite is true: trade between two economies can make each economy better off.Trade allows each person to specialize in the activities he or she does best.These can be individual decisions, family decisions, business decisions or societal decisions.Scarcity means that human wants for goods, services and resources exceed what is available.Resources, such as labor, tools, land, and raw materials are necessary to produce the goods and services we want but they exist in limited supply.Making decisions requires trading off one goal against another.

Economics is the study of how humans make decisions in the face of scarcity. These can be individual decisions, family decisions, business decisions or societal decisions. If you look around carefully, you will see that scarcity is a fact of life. Scarcity means that human wants for goods, services and resources exceed what is available. Resources, such as labor, tools, land, and raw materials are necessary to produce the goods and services we want but they exist in limited supply. For example the ultimate scarce resource is time- everyone, rich or poor, has just 24 hours in the day to try to acquire the goods they want. At any point in time, there is only a finite amount of resources available.

Principle 1: People face trade-offs
To get one thing that we like we usually have to give up another thing that we also like. Making decisions requires trading off one goal against another.
When people are grouped into societies, they face different kinds of trade-offs. One trade-off society faces is between efficiency and equity. Efficiency means that society is getting the most it can from its scare resources. Equity means that the benefits of those resources are disturbed fairly among society’s members. Life’s trade-offs is important because people are likely to make good decisions only if they understand the options that they have available.
Principle 2: The cost of something is what you give up to get it
Because people face trade-offs, making decisions requires comparing the costs and benefits of alternative courses of action. In many cases, the cost of some action is not as obvious as it might first appear.
The opportunity cost of an item is what you give up to get that item. When making any decision, decision makers should be aware of the opportunity cost that accompany each possible action. In fact, they usually are.
Principle 5: Trade can make everyone better off
The Americans and the Japanese are often mentioned in the news as being competitors to Europeans in the world economy. In some ways this is true, because American and Japanese firms do produce many of the same goods as European firms. Trade between Europe and the United States or Japan is not like a sports contest, where one side wins and the other side loses. In fact, the opposite is true: trade between two economies can make each economy better off.
Trade allows each person to specialize in the activities he or she does best. By trading with others, people can buy a greater variety of goods and services at lower cost. So Japanese and Americans are as much our partners in the world economy as they are our competitors.