Principles of Economics

Unemployment is a macro phenomena with real consequences for individuals. Here, the authors provide sound advice on how students can protect themselves from the harmful effects of unemployment.

Protecting Yourself from the HarmfulEffects of Unemployment

Unemployment can be terrible. But there are some things you can do to help protect yourselffrom the harmful effects of unemployment.

Do more job searching than you really want to do. Job searching whenyou’re unemployed is a miserable experience. Too often people procrastinate finding ajob, doing too little search until their savings start to run out or their unemployment insuranceis about to end. But remember the core principles of economics and apply for anyjob for which the marginal benefit of applying (the probability of getting a job offer timesthe wage) exceeds the marginal cost of applying (and remember that the emotional painof applying is short-lived!).

Build up a nest egg. Now that you know half of those who lose their job end upunemployed for more than 10 weeks, and it’s not unusual for it to take six months tofind work, you probably understand why financial advisers tell you to have three to sixmonths of expenses saved up. You should find out if you’d be eligible for unemploymentinsurance and put away a bit more if you aren’t or if the unemployment rate is high.Remember that anyone can end up finding themselves unemployed. But the experienceis not as bad if you have enough in savings that you don’t have to worry about payingthe rent.

Build new skills. The economy is constantly adapting, and you must too. Continuingto learn and build your skills is necessary to advance your career, but it’ll also help youland on your feet if you find yourself unemployed.

Keep an eye out for better opportunities when you’re employed.Many employed people keep searching for other opportunities. Keeping an eye out for better opportunities when you’re employed can help you advance in your careerby identifying jobs that use recent skills you’ve built, but it can also help if thingsstart to get rocky in your current position. Many people who think their job is likelyto come to an end begin searching long before a pink slip arrives. Such searchingincreases the chance that you’ll avoid unemployment by being able to start a new jobright away.

Tap into all your networks if you become unemployed. You’re more likelyto get hired if you have a referral. So if you find yourself unemployed, it’s time to call oneveryone you know to tell them that you’re looking. It takes courage to tell your friendsyou’re looking for work, or to broadcast your job search through social media, but lettingpeople know that you’re looking for a new opportunity can pay off.

Avoid long-term unemployment. Sometimes you’re offered a job that’s not quiteas good as you think is possible. If it’s your first week searching, you might want to turn itdown, but don’t keep turning jobs down forever. You’ve learned about the scarring effectsof long-term unemployment—that means that you want to avoid it even if means settlingfor Mr. Not-So-Right Job. The good news is that, unlike marriage, you can keep searchingfor a better job even while you’re employed.

Behavioral economics is one of the hottest topics in the discipline, and Stevenson and Wolfers address behavioral econ throughout micro, including a thorough examination of how we assess risk in Chapter 19.

Behavioral Economics: How People Make Mistakes Around Uncertainty

You’ve now developed a robust understanding of how to make good decisions in the faceof uncertainty and learned some strategies you can pursue to reduce risk. But risk is adifficult concept, and people often struggle with it. In 2018, the Nobel Prize in economicswas given to Richard Thaler, who in his acceptance speech said that he was receivingthe prize because he “discovered the presence of human life in a place . . . my felloweconomists thought it did not exist: the economy.” He and many economists in the lastfew decades have studied how human beings process information to understand what itmeans for economic decision making. This type of research has been called behavioraleconomics because it includes psychological factors in assessing how people make economicdecisions. All of economics is concerned with human behavior; in recent decadeseconomists have developed a better understanding of the behavior of actual humans.

This is a big deal when it comes to uncertainty because people often make fairly predictablemistakes when assessing probabilities and payoffs. These mistakes stem fromrelying on snap judgments, rather than more reasoned consideration. Psychologists distinguishbetween two styles of thinking. System 1 refers to your intuitive thoughts. Theyare fast, effortless, and almost automatic. These intuitions rely on rough, but often accurate,rules of thumb. The first psychologist to win the Nobel Prize in economics, DanielKahneman, calls System 1 “thinking fast.” By contrast, System 2 is your slower, deliberative,logical self, and it uses a methodical style of thinking that requires cognitive effort.Not surprisingly, he calls that “thinking slow.” When you’re thinking through expectedutility calculations, you’re thinking slow. But most of the time, you’re using System 1 andthinking fast. Life is too short to think slow all the time. Even so, thinking fast leads usastray a lot, particularly when it comes to uncertainty.

Good decision makers know when it’s time to overrule their snap judgments andrevert to thinking slow. And so you can think of what follows as an operating manual foryour mind. This operating manual will help you figure out when thinking fast will yieldbad answers, so that you pause your intuition and apply the more deliberate approach ofthinking slow instead.

Unique coverage of labor market dynamics provides students with a more complete understanding of what unemployment numbers mean and why the fed doesn’t target zero unemployment.

The Dynamics of the Labor Market

To better understand the labor market, it’s helpful to start with an analogy. Picture a busyrestaurant: As customers leave, new customers are seated. Tables are always turning over,so while most tables are full, new customers arriving are able to find a table without muchof a wait. Sometimes, though, things clog up and there are more customers than tables orit takes a lot of time to get tables ready for new customers.

The labor market is in many ways like a crowded restaurant, where jobs are like tablesand workers are like hungry diners. Every day, hundreds of thousands of people leave andstart jobs. People leave jobs for all sorts of reasons—they may get laid off or fired, they mayquit for a better job, or they may quit to exit the labor force. Just like a dynamic restaurant,where a large number of tables turning over regularly makes it easy for new people to arrive and find a table quickly, a dynamic labor market makes it easy for new people to enter the labor market and find a job quickly.

But, like a restaurant, the labor market can also get backed up. Potential workersmay not be well matched to the jobs available. If many people become unemployedat once, there may not be enough job openings for everyone, and it may takelonger to find a job. There may be barriers to employers eliminating inefficient jobsor workers, which slows down the process of creating new jobs or hiring new workers.Let’s take a closer look at the dynamics of the U.S. labor market.

Students learn how to put economics to work—at work. They'll see that smart employers invest in human capital, and use incentives to motivate workers and shape corporate culture.

Personnel Economics

Congratulations on your promotion! Now you’re the boss. Sure, you’ve worked for badbosses in the past. But you’ll be different. You’ve just got to figure out how. As the boss, you’ll be in charge of your firm’s personnel policies. Your goal will be to get your workersto do more, without costing your company too much. We’ll explore five big ideas that realworldmanagers use:

1. Ensure your workers have the right skills for the job.
2. Motivate your staff with incentives.
3. Shape your corporate culture.
4. Offer the right benefits package.
5. Attract and retain better workers.

As we explore these ideas we’ll discover that economic reasoning can lead to someunexpected insights into how to get your workers to be more effective. Let’s exploreeach of these big ideas in turn.

You can motivate your workers with either carrots or sticks.

Students learn the importance of using real dollars by comparing box office receipts for eight films in the Star Wars franchise.

Do the Economics

You can see how this formula works by converting the box office take from different erasinto today’s dollars (and to help you, Figure 6 shows you the price level for each year):

The Force Awakens was released in 2015, and it grossed $937 million in 2015dollars, when the CPI was 237.0. Today (in 2018) the CPI is 251.1. Therefore:

Students learn to apply the cost-benefit principle and the opportunity costs principle to just about every decision they make. They'll quickly see that when folks are unemployed, their time is less scarce; in economic terms, it's “cheaper” to go to the movies when you don't have to miss work to do it.

Why do more people go to the movies during an economic downturn?

During the recent economic downturn, the major film studios braced themselves for amajor decline in business. But they shouldn’t have. Why? The most important cost ofseeing a movie isn’t the $13 price of the ticket. Instead, it’s the opportunity cost of your time. The movie takes two hours, and you could spend this time doing something else. Perhaps you could be working instead of seeing the movie. But when the economy isweak, there are fewer jobs, and there is often less work to do, and so the opportunitycost of your time is lower. Or perhaps the alternative to the movie is going to a party.But fewer people throw parties when the economy is weak, so your alternative may be anight watching television. Because the opportunity cost of time is lower during an economicdownturn, people choose to see more movies. In fact, a weak economy is oftengood news for the movie industry.

Give your students an insider’s view of the Federal Open Market Committee (FOMC) operations, with details on what’s discussed and how the public policy decisions that affect their lives are made—and by whom.

The Federal Open Market Committee

The Fed governors, the New York Federal Reserve Bank president, and the district Fedpresidents form the Federal Open Market Committee (FOMC), whose purpose isto decide on U.S. interest rates. They all participate, but only the Fed governors, theNew York Fed bank president, and a rotating group of four regional Fed presidents arevoting members, meaning that they vote on policy decisions. The Fed chair runsthe FOMC and is the most important spokesperson for the Fed. The FOMC meeting is thatmeeting mentioned at the start of the chapter—the one that’s one of the most importantmeetings in the world—so let’s take a look inside it.

Step into the meeting. When you walk into an FOMC meeting, you’ll see a bigtable with the members and participants seated around it. The Fed chair sits in the middleand decides who’s going to speak and in what order. These decisions sound minor, but they can have a bigger impact on outcomes than you might expect. Former Fed chair Alan Greenspan used to tell everyone what he thought the right monetary policy decisionwas first, making it awkward for other members to discuss alternatives.When Ben Bernanke took over as Fed chair in 2006, he took a more democraticapproach. In order to foster debate, he waited to share his views until he’d heardeveryone else speak. His successors, Janet Yellen and Jerome Powell, have followed asimilar approach, resulting in a wider range of views and data being brought into thediscussion. Research also shows that greater gender and racial diversity in meetings canimprove decision making, and the Fed and Congress have made progress in bringinggreater diversity to the FOMC in recent years.

So now that you know who’s at the meeting, let’s turn to what they talk about. Todecide monetary policy, each member must be prepared to answer three questions:

1. What are your forecasts for the U.S. economy?
2. What are the right policy choices given the economic outlook?
3. How should the Fed communicate its plans effectively to the public?

Each member prepares their answers to these questions in advance, and they’ll oftenarrive at the meeting with quite different views. The meeting is a time for them to discusstheir answers to these three questions, develop a consensus view, and make a decision.

Ideas are engines for growth, for companies and for entire economies. Stevenson and Wolfers emphasize both the macro and micro implications of ideas—and show that human capital is worth investing in.

Innovative companies make time for new ideas

Successful managers know that new ideas are the key not just to economic growth, butto the growth of their own business. Google founders Larry Page and Sergey Brin recognizedthe trade-off workers face between producing goods and services and producingnew ideas—and they wanted to ensure that their employees spent time working on newideas. That’s why Google embraces the “20% rule,” which empowers all employees tospend up to 20% of their workweek dreaming up and developing their own ideas fornew products. Google argues that this option helps keep their highly creative employeesengaged in generating new ideas. It also ensures that workers maintain control overtheir creative energy and some of their work time. Does it work? It sure seems to: Gmail,Google Maps, and Google News all started as projects that employees pursued in their20% time.

Lots of companies implement similar tactics to ensure that their employees devotesome time to developing new ideas. For example, the CEO of Bosch Group asked itsentire workforce to form into teams that were tasked with trying to come up with ways tocompete against Bosch. They took the best ideas these teams came up with and gave aselected group of people eight weeks leave from their regular duties to see if they couldturn the idea into a new or improved product for Bosch.The bottom line is that it takes time to come up with new ideas, and smart managersmake sure that their workers have time to innovate.

Students are invited to follow one family-owned American business as it facs the challenges of selling its products internationally.

InternationalFinance and the Exchange Rate

In 1893, the Mathison familybegan a small farm in WashingtonState, producing enough tofeed their family. Over time, thefarm grew, and they began sellingtheir crops at local markets.By the 1950s they were sellingin markets outside of Washington,but they were struggling.They would load ripe, freshlyharvested cherries onto trainspacked with ice and hope theywould still be good when theymade it to their destination.If their fruit made it to NewYork with little spoilage, theywere nearly guaranteed robustdemand from the large populationof New Yorkers. But if it gothot, spoilage rates were punishingly high. In 1958, they made a mere $88 after producing100 tons of fruit because most of it rotted en route.

To succeed, the Mathisons needed to solve the problem of spoilage. Theyworked to improve their packing and transportation methods and by the 1970s,they had built a fruit packing, storage, and shipping facility that kept their fruit coldenough that it could survive a trip across the United States. This innovation not onlygave them access to markets as far away as New York, but it also laid the foundationfor exporting their fruit around the world. By the 1980s, they were exportingapples and cherries to a handful of countries. Over recent decades their business hasgrown as they’ve entered more foreign markets. Today, the Mathisons export fruit to26 countries.

All of this has required the Mathisons to become conversant in exchange ratesand international finance. We’ll follow the Mathisons’ decisions in this chapter, analyzingwhat determines how competitive they’ll be in the global market, and whetherit makes sense to sell their produce abroad. International transactions often involveforeign currencies, and so we’ll dive into how exchange rates are determined, howthey respond to changing economic conditions, and how they’ll affect the Mathisons’business. Along the way we’ll see how developments in the global economy affectthe prices you’ll pay as you seek goods, services, customers, investments, and investorsfrom around the world. As you read this chapter, keep your eye on the broadertheme, which is that increasingly all business is international business, and so thefates of businesses, communities, and countries around the world are becomingincreasingly interdependent.

Everyday Econ features present simple life hacks that take economic thinking—and economic research—and apply it to real-life situations every student will eventually face. Here, the authors walk students through a salary negotiation with advice on factoring in inflation.

How to beat money illusion by negotiating for a real raise

A few years back a friend of mine was negotiating a raise with his boss and reached outto me for advice. He was earning $100,000 per year and his boss offered him a contractthat would see his wage rise by 5% over the five-year term of the contract. My friendwanted more, but he understood his boss had limited funds, and he was pleased to seehis hard work rewarded with a pay increase.

But he wasn’t getting a real pay raise. Inflation was running at about 2% per year, soover five years, the average price level would rise by about 10% while his wages wouldonly grow at half that rate. If your nominal wage rises by 5% over a period when pricesrise by 10%, then your boss is actually cutting your real wage by about 5%.

My friend’s mistake was to think about his current nominal wage as the baselinein his wage negotiations. Relative to that reference point, any boost to his nominal wage was framed as good news. Instead, you want to make your current real wage thestarting point.

So when you next negotiate over your pay, begin the conversation with your boss bypointing out that inflation has reduced the value of your wage. Lay out the latest numbersand suggest that you expect an inflation-based adjustment to offset the rising cost of living.There’s not really a good counterargument, so it’s likely they’ll agree. Now that you’veset your real wage as the baseline, turn the conversation to what sort of real wage boostyou deserve for your hard work over the past year. If you’ve performed well, this conversationshould also go well. How well? When I advised my friend to follow this script in hisnegotiation, he ended up with a much bigger raise than his boss originally offered—morethan enough to offset inflation. If his experience is any guide, it will work for you, too.

How to save money on household repairs

Your roof starts leaking. A pipe bursts. Or perhaps your electrical wiring shorts. Whateverthe domestic disaster, you want to make sure to shop around. If you just call onecontractor and ask them to make the repair, it’s likely they’ll charge you a high price.They figure they have a lot of bargaining power, because your next best alternative—living without shelter, water, or electricity—is pretty terrible.

This shift will lead these competing contractors, who each want the job, to offer a muchlower price. Even simpler: Just call one tradesman for a quote, but tell them that you’regoing to get two more quotes. They won’t know if you ever make those calls, but the factthat you are considering it will likely lead them to offer you a more reasonable price.

Stevenson and Wolfers show connections between the four core principles and macroeconomic trends, such as child care and marriage decisions.

In 1975,more than half of all mothers stayed out of the labor force.Since then, things have changed, and the most recent data suggestthat only 30% of moms stay at home. Why? Most mothersface a choice between staying at home and working for pay.Over recent decades, there has been a sharp rise in women’swages, and since 1975, the annual earnings of a typical full-timefemale worker rose by around $10,000 (after adjusting for inflation),even as male earnings barely changed. Consequently, theopportunity cost of being a stay-at-home mom has risen. Asthis opportunity cost has risen, fewer women have chosen tostay at home. Instead, more women are now choosing to combinemotherhood and working for increasingly better pay.

The costs and benefits of college education are explored throughout Stevenson and Wolfers, with an emphasis not only on the financial returns of going to college, but also the opportunity costs involved in forgoing work to pursue more education. Do the benefits outweigh the costs? Usually, yes—and the benefits for econ majors are even greater!

The true cost of college

You now have the tools you need to assess the true cost of your own college experience.I bet you thought about the cost of college before applying, and you probablylooked up the numbers on your college’s website. But you were probably thinkingabout it wrong. That website probably listed the cost of things such as tuition, housing,meals, books, and health insurance—a list that is surprisingly unhelpful for evaluatingthe true opportunity cost of attending college.

For that, you need to know: If you weren’t attending college, what would be different?It’s true that you wouldn’t be paying tuition, so that’s an opportunity cost. But youwould surely continue to eat, so the cost of food isn’t an opportunity cost. The same goesfor the cost of rent and health insurance. College websites always manage to omit thebiggest cost of going to college, which is that if you weren’t studying, you would probablybe working and earning tens of thousands of dollars. Those forgone earnings are animportant opportunity cost that you need to consider.

Yes, going to college involves a large opportunity cost. But hopefullyapplying the opportunity cost principle to your decisions while you’re incollege will help you make sure that the benefit of your college educationexceeds the cost.

Students probably don't think about it, but marriage provides more than just companionship and love. It also provides a sort of safety net—especially if your spouse is different from you.

How Marriage Provides Insurance

Here’s an important benefit of marriage: It provides something akin to social insurance.Think about traditional wedding vows: Spouses promise to look after each other “forbetter, for worse, for richer, for poorer, in sickness and in health.” That sounds like apromise to provide unemployment insurance, disability insurance, and health insurance.Just as unemployment insurance ensures that you’ll still be able to get by when youlose your job, a working spouse effectively provides the same insurance. In both cases,someone—your spouse or the government—will help you pay for groceries if you loseyour job. Your spouse can do a better job of insuring you if they don’t face the samerisks as you do, which is one reason to marry someone who works in a different occupationor at least for a different employer—you’re less likely to both experience unemploymentif you aren’t both working at the same company.

But marriage provides imperfect insurance, because there remains the risk that yourspouse will also lose their job. Divorce also provides an escape hatch in which yourspouse can fail to provide the promised coverage when a bad event happens.

Economic indicators provide useful insights. But just like blood pressure, heart rate, and EKG readings, each one only tells part of a large and complicated story. Stevenson and Wolfers provide students with a handy guide to interpreting the economic indicators that come up regularly in the news—along with some that don't—and show how they are used to assess the overall health of the economy.

Top 10 Economic Indicators

Okay, now that you know something about how to analyze macroeconomic data, let’s takea look at some key macroeconomic indicators. I often get asked what’s the one indicatorthat I follow to know how the economy is doing. My response? You shouldn’t only look atone indicator if you really want to know what’s happening. That’s because different typesof data tell you different things. Let’s take a look at the top 10 economic indicators thosewho track the economy follow.

Indicator one: Real GDP is the broadest measure of economic activity.First, there’s real GDP, which measures the total size of the economy. Real GDP is thebroadest measure of economic activity since it measures total production, total spending,and total income across the whole economy. It’s typically calculated by adding up allspending in the economy—you know, Y =C + I +G +NX. (See Chapter 9 for a refresher.)You should focus on GDP growth to see how fast the economy is growing. But keep inmind that GDP data are very incomplete when they’re first released.

Indicator two: Real GDI provides a useful cross-check on GDP. There’sanother closely related measure of the economy’s total output. An alternative measurecalled Gross Domestic Income (or GDI, for short) is calculated by adding up total income.Because every dollar of spending is also a dollar of income for whomever received it, GDPand GDI should be equal. In practice, these measurements can differ because they’reeach constructed using different data sources with different shortcomings. Early reports ofthe income data are often more reliable than the spending data, and so GDI often flasheswarning signs for the economy sooner than GDP does. In fact, many countries combineincome and expenditure measurements to create their primary GDP statistic. The UnitedStates doesn’t, so it’s worth tracking both measures.

Indicator three: Nonfarm payrolls tell you if the labor market is improving.Nonfarm payrolls track how many jobs are created each month. It’s called “nonfarmpayrolls” because it tracks the number of workers on businesses’ payrolls. Don’t worryabout the fact it misses farm jobs because they’re only a small fraction of the economy.Nonfarm payrolls is one of the most important indicators because it’s released soon afterthe end of each month, and so it provides an early and quite reliable look at how quicklythe economy is creating jobs.

Indicator four: The unemployment rate is an indicator of excess capacity.The unemployment rate tells you the share of the labor force that wants a job and hasn’tbeen able to find one. It’s a snapshot of how strong the labor market is and how easy it is tofind a job. It’s important both as an economic indicator—a measure of excess capacity—and also because unemployment is a major source of misery for many people.

Students cae see price discriminination in action as they examine how pharmaceutical companies are able charge different species different prices for the same drug.

Why the same drugs cost less for Fido than for Freddy

You might be surprised to learn that humans and dogsoften take the same medications. In some cases, they’reidentical—they use the same active ingredients, meet thesame FDA rules for quality and purity, and are often madein the same factory by the same drug company. The keydifference between the dog and human versions is thatpeople fill their prescriptions at a retail pharmacy, whiledogs fill their prescriptions at a veterinary pharmacy.

A study that examined eight of these dog-and-humanmedications found that the human pharmacy typicallycharged a price that was around twice as high as the veterinarypharmacy. It’s a simple case of price discrimination—charging different species different prices for the exactsame drug. This price differential is targeted to differencesin reservation prices, suggesting that people care moreabout their own health than that of their four-legged friends.Woof!

A comprehensive guide provides useful strategies for future sellers—and valuable insights for every consumer.

Sophisticated Pricing Strategies

As Hurricane Irma passed through the Caribbean it generated winds as high as 185 miles per hour, causing catastrophic damage wherever it made landfall. It destroyed much of the Virgin Islands, killing several people along the way. It then turned northwest, setting its sights on Florida. The governor declared a state of emergency and ordered thousands of people to evacuate.

That’s when one technology lover— the owner of a Tesla electric car—discovered a problem. Their car—a Tesla Model S60— could hold enough charge to drive 200 miles, but it would take a trip of 230 miles to escape the evacuation zone. A quick phone call to Tesla asking for help yielded a surprising result. Quietly, Tesla sent a fragment of computer code to potentially stranded car owners, temporarily unlocking the car’s latent ability to drive further.

You see, Tesla sold two versions of their Model S. The Model S75 came with a 75 kWh battery which gave it a range of 250 miles. The Model S60 was $6,500 cheaper, and as you might expect if it had a 60 kWh battery, it had a shorter range of 200 miles. But in reality, it had the same 75 kWh battery as its more expensive sibling. The only real difference was that Tesla had added a snippet of code to the cheaper car, and it was that line of code—not any physical battery limitations—that gave it the shorter range.

Why would Tesla purposely cripple some of its cars? The answer is that it’s part of a sophisticated pricing strategy. Tesla figured out a way to get different customers to pay different prices for the same good. Price-sensitive customers could pay $68,000 for the S60—as long as they’re willing to live with the shorter range. And less price-sensitive customers could pay $74,500 for the S75 and avoid the hassle of charging the car more often.

It’s a surprising answer to a question that many managers ask: How can I make as much money as I can from each of my customers? Tesla’s answer is to charge some customers more than others. As we’re about to discover, there are many sophisticated pricing strategies you can use to do this. Get this pricing strategy right, and you’ll drive your profits up.

Students probably reach for their phones 100 times a day: It’s a communication device, a camera, a calculator, a library, a music player, a calendar… and so much more. Stevenson & Wolfers show them that economists think of their toolkit the same way: As they master the four core principles of economic decisions, they'll quickly see how these tools can be applied to just about any decision they face, no matter what their major or career aspirations, and also apply these tools to their personal lives.

A Systematic Framework for Making Decisions

The atom is the basic unit of matter, and so physicists begin by trying tounderstand the atom, and from that, build their insights into the functioningof our physical world. Biologists start with the cell, the basic building block ofall living things, and build from there to understand how different organismslive. And for economists, individual decisions—choices—are the foundationof all economic forces. Your decisions, and those of others, collectively determinewhat’s made, who gets it, and whether it yields fair outcomes. Becausethese broad economic outcomes are the product of many individual choices,economic analysis always begins by focusing on individual decisions.

This is where the four core principles come in. Together, they provide a systematicframework for analyzing individual decisions. In particular, through the rest of thischapter, we’ll see that whenever economists evaluate a decision:

• We consider the costs and benefits of a choice. (The cost-benefit principle.)
• Before making a choice, we consider the alternatives, asking: “Or what?” (Theopportunity cost principle.)
• We think at the margin, always asking whether a bit more or a bit less of somethingwould be an improvement. (The marginal principle.)
• And we are particularly attuned to understanding how different decisions dependon each other. (The interdependence principle.)

Sounds straightforward, right? The challenge is going to be applying these ideas—which we’ll analyze through the rest of this chapter—to the wide array of decisions you’llface in your life.

This systematic approach provides insight into just about every decision you face.Going shopping? Apply the core principles of economics, and you’ll likely make betterchoices about what to buy. Trying to decide whether to do further study? We’ll see thatthe core principles can help you sort out whether that’s a good idea. Thinking of startingyour own business? Apply these principles to figure out whether that’s your best choice.Settling down, and trying to decide how many children you should have? Again, applythese principles.

If you get in the habit of thinking about economics through the core principles, you’lldevelop a sharper understanding and make better decisions. Speaking of which, younow face an important decision: You have to decide whether to keep reading, or not.Thousands of my past students can attest that the benefit of learning to think like aneconomist far exceeds the cost. And as you’re about to discover, when the benefits exceedthe costs, the first of these principles tells you that it’s a choice worth making.