Economic Proposition

In English

Lesson for Life

Scarcity

You can't have everything you want.

Acceptance of scarcity will help you make more reasoned choices.

Alternatives

Different options from which you can choose.

There are many different ways to allocate resources and to solve problems.

Choice

Because you can't have everything you want, you have to make choices from a list of alternatives.

When policy-makers decide on a particular resource allocation, recognize that a choice had to be made due to scarcity. You may not like the alternative chosen, you may question the choice, but the villain is scarcity.

Trade-offs

Choices involve giving up something to get something. All choices have consequences, both positive and negative.

You are responsible for the consequences of your choices. Since you make choices, you can't be a victim.

Opportunity Cost

A resource can only be allocated to one thing at a time. The opportunity cost of deciding to do one thing is the next best alternative use of the resource.

All choices have opportunity costs. A good idea is only a good idea if its value is greater than the value of its opportunity cost. Voters must always identify the opportunity cost of a particular policy.

Benefit/Cost Analysis

Is it worth it? Are the positive aspects of the action greater than the negative aspects? Is it a "good deal?"

Analyzing positive and negative aspects of potential decisions forces you to think more carefully about your choices.

Comparative Benefit/Cost Analysis

Even if it is a good deal, is this the best deal? Is this the best use of limited resources?

Putting the decision in the context of all alternative uses of your resources helps you see your world in its completeness.

Marginal Benefit/Cost Analysis

OK, you've used all your resources. Now you get some more. Where should they go so that you get the greatest additional benefit for every additional resource you use.

The concept of the margin allows you to answer questions such as: "How much school should I have?" "Should I buy the bigger stereo?" "How much should I study and how much TV should I watch? How much is too much, how much is not enough? Is this the straw that will break the camel's back?"

Sunk Costs

Regardless of how high the costs were in the past, the important question is whether future additional benefits are greater than future additional costs. Past costs are not relevant in the decision.

Concentrating on the future instead of the past allows you to work on what you can control as opposed to what you cannot control.