Chapter 1

The fundamental lessons about individual decision making are that people face trade-offs

among alternative goals, that the cost of any action is measured in terms of forgone

opportunities, that rational people make decisions by comparing marginal costs and marginal

benefits, and that people change their behavior in response to the incentives they

face. The fundamental lessons about economic interactions among people are that

trade and interdependence can be mutually beneficial, that markets are usually a good way

of coordinating economic activity, and that governments can potentially improve market outcomes

by remedying a market failure or by promoting greater economic equality. The fundamental