Key Economics Concepts: Tradeoffs, Opportunity Cost Marginal Analysis, Incentives.

Scarcity: the limited nature of society's resources; Economics: the study of how society manages scarce resources, e.g. how people decide what to buy, how much to work, save, and spend; how firms decide how much to produce, how many workers to hire; how society decides how to divide resources between national defense, consumer goods, protecting the environment, and other needs.

All decisions involve tradeoffs. Examples: going to a party the night before a midterm leaves less time for studying; work vs. leisure; protecting the environment uses resources that could otherwise be used to improve education.
Society faces an important tradeoff: efficiency vs. equality.

The opportunity cost of any item is whatever must be given up to obtain it. Principle #2: The Cost of Something Is What You Give Up to Get It.
Example: Seeing a movie: ticket price = $10$ ; instead, you could have babysat and earned $25$ ; opportunity cost of going to the movie = $25$ .

Rational people think at the margin: decisions involve marginal changes; evaluate the costs and benefits of a little more or a little less.
Marginal benefit vs. marginal cost: in decisions, individuals undertake an action only if MB > MC.
Principle #3: Rational People Think at the Margin.
Also: ignore sunk costs (costs already incurred do not affect marginal decisions).

An incentive is something that induces a person to act; rational people respond to incentives.
Example: When gas prices rise, consumers buy more hybrid cars and fewer gas-guzzling SUVs.

There is no such thing as a free lunch.
Examples of marginal decisions: price differences across locations:
- For sale in Bookstore = $30$ ; for sale in Boone = $20$ (illustrates incentives to act on price differences).
- For sale in Boone = $20$ vs bookstore = $30$ (incentive to shop where cheaper).
ASU football example: Benefit = $30$ , Cost = $20$ ; since MB > MC, do it.
Car repair example: Cost to fix = $600$ , Benefit from fixing = $800$ ; fix it (MB > MC).
Sunk costs: ignore them when making marginal decisions.
Unemployment and crime: some link observed; relationship can be expressed as a line: $P = 270.08 imes U + 2766.3$ where $P$ = property crimes per 100,000 and $U$ = unemployment rate.
Incentives and policy: safety regulations can alter behavior by changing incentives, sometimes producing unintended consequences (e.g., people may drive faster when perceived safer, increasing accidents).

Economics studies how people respond to tradeoffs, costs, and incentives under scarcity.
Decision rule often boils down to marginal analysis: act when marginal benefit exceeds marginal cost, while ignoring sunk costs.
Incentives shape behavior and policy effects can be unintended.