Economics is the study of how society manages its scarce resources.
There is no such thing as a free lunch. The common trade-off is between efficiency (society is making the best of the scarce resources) and equality (benefits are distributed equally).
The opportunity cost of an item is what we give up to get something - the greatest cost in going to college is not money, but time, which is an opportunity cost.
Economists assume that people are rational and look at things marginally - the changes that occur when we make a small change to our plan of action. Rational people make decisions by looking at marginal benefits and costs.
People respond to incentives. When policymakers fail to consider how their policies affect incentives, there are often unintended consequences. Example: see page 8 (seatbelt law)
Trade can make everyone better off. People gain from their ability to trade and competition results in gains from trading. Trade allows people to specialize in what they want. There is something called the Robinson Crusoe economy wherein there is no possibility of trade (Robinson Crusoe was the only person on the island). He had to produce all the goods for all his needs. This is a protectionist approach and tries to make the units completely self-reliant. On the other hand, liberalism asks people to focus on their strength and encourages trade.
Markets are (usually) a good way to organize economic activity. A market economy allocates resources through the decentralized decisions of many firms as they interact in markets. It is a decentralist approach. Households/firms separately decide who/what to hire/work for/buy/produce. Adam Smith observed that households/firms act as if they are guided by an “invisible hand”. Althought they act separately, the system doesn’t crash. This invisible hand is just supply and demand and prices are the instrument using which 「the hand」 directs market activity. Because households/firms look at prices when they make decisions, they unkowingly account for the social costs of their actions. Individual supply and demands get converted to social supply and demands, which results in the aggregating of individual entities. This results in decision makers to reach outcomes that maximise the welfare of society. When this invisible hand is disrupted (perhaps by the government), there can be adverse affects such as how taxes adversely affect resource allocation.
Governments can improve market outcomes. The invisible hand only works if the government enforces the rules and maintains the key institutions. If left to their own, it is possible that agents reach inferior solutions. After independence, it was nearly completely centralized. Markets work only if property rights are introduced. For free market economies to work and maximise societal welfare, it is paramount to ensure that the citizens’ property rights are upheld. Market failure is said to occur when the market fails to allocate resources efficiently. If it fails, the government can intervene to promote efficiency. Failure could occur due to