Advanced Placement Microeconomics

earthblurtingΤεχνίτη Νοημοσύνη και Ρομποτική

14 Νοε 2013 (πριν από 3 χρόνια και 7 μήνες)

676 εμφανίσεις

Advanced

Placement

Microeconomics



Enclose
d

ar
e

you
r

introductor
y

reading
s

an
d

ass
i
gnment
s

fo
r

th
e

Advance
d

Placemen
t

Mi
cr
o
e
c
ono
mi
c
s
cours
e

fo
r

th
e

2012
-
2013 schoo
l

year
.

I
n

additio
n

to presenting you with background information and
the basic principles
and concepts within the study

of economics this

pac
k
et
wil
l

pro
v
id
e

y
o
u

wit
h

an

ide
a

o
f

assignment
s

an
d

expectation
s

o
f

th
e

course.



Afte
r

readin
g

thi
s

packe
t

yo
u

shoul
d

b
e

prepare
d

t
o

summariz
e

an
d

exp
l
ai
n

al
l

th
e

c
o
n
c
e
p
t
s

a
n
d

t
o
pi
c
s
discus
s
e
d

a
s

wel
l

a
s

hav
e

c
o
mplete
d

al
l

assignmen
t
s

an
d

ques
t
ion
s

loca
t
e
d

a
t

t
h
e

en
d

o
f

eac
h

reading
a
ss
i
g
n
m
e
n
t
.

Yo
u

w
i
l
l

b
e

gi
v
e
n

a

p
r
e
l
i
m
i
n
a
r
y

a
ss
e
ss
me
n
t

ba
s
e
d

u
po
n

you
r

understan
d

an
d

completio
n

of
th
e

informatio
n

an
d

b
e

expecte
d

t
o

successfull
y

pas
s

in order to continue
within the course. Good luck
and see you next year.


M
r
.

Ki
r
o
ua
c

mkirouac@pasco.kl2.fl.us





Readin
g

Sources:


E
c
onomic
s

b
y

E
xa
m
p
l
e
.

A
nderson
,

Dav
i
d
.

Wort
h

P
ub
l
ishe
r

200
7


Foun
datio
n
s

o
f

Econom
i
cs
.

B
a
de
,

Ro
b
i
n
.

Pearso
n

Ed
u
catio
n
.


200
7

A
d
v
a
n
ce
d

Plac
e
m
e
n
t
Econ
o
mics
:

Micr
o

St
u
d
e
n
t

a
ct
i
viti
e
s
.

Mo
r
t
o
n
,

J
oh
n
.

20
0
5


F
r
e
a
ko
n
omics
.

L
evit
t

an
d

D
u
bne
r
.

Harp
e
r

C
o
lli
n
s
.

2
00
5

ECONOMIC KEY/ESSENTIAL IDEAS




S
carci
t
y

ex
i
s
t
s

bec
a
u
s
e

w
e

hav
e

li
m
ite
d

r
e
sour
c
e
s

a
n
d

un
l
i
m
i
t
e
d

w
a
n
t
s
.

N
o

s
o
c
i
e
t
y

ha
s

e
v
e
r

h
a
d

e
n
ou
g
h

r
e
sou
r
ce
s

t
o

p
r
od
u
c
e

al
l

t
h
e

good
s

an
d

se
r
vice
s

it
s

members
w
a
n
te
d.



Good
s

a
n
d

s
e
rvice
s

a
r
e

p
r
o
duce
d

f
ro
m

p
r
o
d
u
cti
v
e

reso
u
rc
e
s
.

T
h
es
e

r
e
s
o
urc
e
s



lan
d
,

l
abor
,

cap
it
al

an
d

e
nt
repreneursh
ip



ar
e

l
imi
t
ed.




S
c
a
rci
t
y

re
q
u
i
r
e
s

p
e
o
pl
e

t
o

m
ak
e

c
h
oi
c
es
.

I
f

w
e

u
s
e

s
c
arc
e

r
e
so
u
rc
e
s

f
o
r

on
e

p
u
rp
ose
,

w
e

canno
t

us
e

the
m

f
o
r

another.




Opportunit
y

cos
t

i
s

th
e

f
o
rgon
e

benefi
t

o
f

t
h
e

ne
x
t

b
e
s
t

al
t
e
r
n
a
ti
v
e

w
h
e
n

r
es
o
u
rc
e
s

ar
e

us
e
d for one pu
rp
ose ra
t
h
e
r
tha
n
a
noth
e
r.




Becaus
e

o
f

s
c
arcit
y
,

ever
y

decisio
n

ha
s

a
n

opportunit
y

cost.




Ec
o
n
o
m
i
c

c
o
s
t
s

t
a
k
e

a
c
c
o
un
t

o
f

t
h
e

op
por
tunity

cost of doing o
n
e thing rather than
a
no
t
h
e
r.




Ec
o
no
m
i
c

co
s
t
s

i
ncl
u
d
e

e
x
plici
t

c
o
s
t
s
,

whic
h

ar
e

pa
i
d

di
re
c
t
l
y
,

an
d

i
m
p
l
ic
i
t

c
o
s
t
s
,

w
h
i
c
h

a
r
e

n
o
t

pai
d

di
r
ectl
y
.

Bot
h

i
m
p
lici
t

a
n
d

ex
p
l
ici
t

cost
s

a
r
e

o
pport
u
nit
y

c
o
sts.




U
s
i
n
g

fr
e
e

g
o
o
d
s

do
e
s

n
o
t

i
n
v
olv
e

o
p
p
o
r
t
unit
y

c
o
s
t

b
e
cau
s
e

fre
e

g
o
od
s

ar
e

a
vail
a
bl
e

i
n

unli
m
i
t
ed quantities.




Ec
o
n
o
m
i
c
s

i
s

c
o
n
c
er
n
e
d

wi
t
h

m
arg
i
n
a
l

de
cis
i
o
n

m
ak
in
g
.

I
n

e
c
on
o
mics
,

"ma
k
i
n
g

d
ecisio
n
s

a
t

t
h
e

mar
g
i
n
"

i
s

ver
y

imp
or
t
a
n
t
.

M
a
r
gin
a
l

choic
e
s

invo
l
v
e

t
h
e

effec
t
s

of
addi
t
i
o
n
s'
.

.an
d

subtracti
o
n
s

fro
m

th
e

curren
t

sit
u
atio
n

th
e

a
m
ou
n
t

o
f

t
h
e

o
t
h
e
r

g
o
o
d

t
h
a
t

m
u
s
t

b
e

g
i
v
e
n

u
p

i
n

orde
r

t
o

produc
e

t
he

add
i
t
i
ona
l

amo
u
n
t

o
f

th
e

fir
s
t

g
o
od.



Bec
a
us
e

r
e
sour
c
e
s

ar
e

sc
ar
ce
,

usin
g

t
h
e
m

effic
i
ent
l
y

allow
s

u
s

t
o

g
e
t

t
h
e

mo
s
t

fro
m

them
.

Ef
f
icie
n
c
y

i
s

increase
d

th
r
ou
g
h

s
p
ec
i
a
liz
a
tio
n

an
d

t
r
ade
.

Econ
o
mi
s
t
s

u
s
e
th
e

c
o
nc
e
p
t
s

o
f

ab
so
l
u
t
e

advant
a
g
e

an
d

c
o
m
p
a
r
ativ
e

ad
v
a
n
t
a
g
e

t
o

e
xp
l
ai
n

w
h
y

t
ra
d
e

t
a
k
e
s

plac
e

b
etwee
n

count
r
ie
s

an
d

betwee
n

in
d
i
vi
d
ua
l
s
.

T
h
es
e

c
o
nc
e
p
t
s

ar
e

b
a
s
e
d

on
th
e

di
f
f
erence
s

i
n

t
h
e

op
p
ortu
n
it
y

co
s
t
s

o
f

pro
d
uc
in
g

go
o
d
s

an
d

ser
v
ic
e
s

i
n

d
i
ff
er
en
t

ar
e
a
s

o
r

b
y

d
i
ff
e
r
e
n
t

i
nd
i
v
i
d
u
a
ls.



Bec
au
s
e

o
f

s
c
arci
t
y
,

p
e
op
l
e

a
n
d

s
o
cieti
e
s

u
s
e

econ
o
m
i
c

syste
m
s

t
o

d
e
t
er
mi
n
e

wh
a
t

t
o

pr
oduce
,

ho
w

t
o

pro
d
uc
e

an
d

f
o
r

who
m

t
o

pr
o
duce.




Throug
h
ou
t

hist
o
r
y
,

nati
o
n
s

hav
e

use
d

traditio
n
,

c
o
mma
n
d

a
n
d

mar
k
e
t

s
y
ste
m
s

t
o

allocat
e

re
s
ourc
e
s
.




Th
e

l
a
w

o
f

c
om
parativ
e

a
d
vantag
e

s
h
o
w
s

ho
w

ever
y
on
e

ca
n

g
a
i
n

throug
h

trade.




Ec
o
no
m
i
c

t
h
e
o
r
y

i
s

use
f
u
l

i
n

a
na
l
yzi
n
g

a
n
d

understa
n
ding the wor
l
d around
u
s.




Th
e

te
s
t

o
f

a
n

e
co
no
mi
c

t
h
eor
y

i
s

it
s

a
b
ilit
y

t
o

p
r
e
d
i
c
t

c
o
r
r
e
c
tl
y

t
h
e

futu
r
e

con
s
e
q
ue
n
ce
s

o
f

ec
o
n
o
mi
c

a
c
tio
n
s.




Th
e

broa
d

s
o
cia
l

goa
l
s

o
f

a

socie
t
y

inf
l
u
e
n
c
e

decision
s

a
b
o
u
t

h
o
w

b
es
t

t
o

us
e

r
e
s
ou
r
ce
s
.




A

diagra
m

o
f

th
e

c
i
rcu
l
a
r

flo
w

o
f

resou
r
ces
,

good
s

an
d

service
s
,

an
d

m
oney
-
inco
m
e

p
a
y
m
ent
s

i
s

a

si
m
pl
i
fie
d

wa
y

o
f

illustrat
i
n
g

ho
w

a

m
arke
t

econo
m
y

op
e
ra
t
es.
Pr
i
c
e
s

i
n

t
h
e

produc
t

mar
k
e
t

an
d

p
r
ice
s

i
n

th
e

factor
,

o
r

r
e
s
o
urce
,

m
a
r
ke
t

ar
e

de
te
r
m
ine
d

b
y

t
h
e

i
nt
er
acti
o
n

o
f

sup
p
l
y

a
n
d

dem
and
.

Th
i
s

d
ia
g
ra
m

i
s

als
o

c
a
lle
d

t
h
e

ci
r
c
ul
ar
fl
o
w

o
f

income.



A

p
r
o
d
uct
i
o
n

p
o
ssibili
t
i
e
s
,

cu
r
v
e

ca
n

b
e

use
d

t
o

illu
s
t
r
a
t
e

sca
r
c
i
t
y
,

c
hoi
c
e
s

a
n
d

o
pport
u
n
i
t
y

co
s
t

di
a
gra
mm
atical
l
y
.




Th
e

s
l
op
e

o
f

a

productio
n

p
o
ssibili
t
ie
s

curv
e

sh
o
w
s

t
h
e

opportunit
y

cos
t

o
f

producin
g

anot
h
e
r

uni
t

o
f

on
e

goo
d

i
n

te
rms

o
f

th
e

othe
r.




Ad
vance
d

P
lace
m
en
t

Eco
n
o
m
ic
s

M
i
croec
o
n
o
m
ics
:

Studen
t

A
c
tivitie
s

©

A

R

T

IMi

I
I

I
N
TRO
D
UC
T
I
O
N

WHAT'
S
T
O
LOV
E
ABOU
T
ECONOMICS
?

Virtu
e
s

o
f

th
e

E
c
ono
m
i
c

Wa
y

o
f

T
h
i
n
king


O
n
c
e

a

year
,

10
0

fun
-
lovi
n
g

individual
s

descen
d

o
n

a

colleg
e

tow
n

fo
r

a

wee
k

o
f

wor
k

an
d

play
.

Th
e

grou
p

include
s

surfers
,

Ironma
n

t
r
iathletes
,

hul
a

dancers
,

weigh
t

lifters,
vegetarians
,

musicians
,

worl
d

travelers
,

an
d

wate
r

po
l
o

coaches
.

The
y

fr
e
quen
t

l
o
c
a
l

b
a
ll
g
a
m
e
s
,

r
a
c
e
t
racks
,

an
d

ka
r
ao
k
e

nights
,

wher
e

so
ng
s

su
c
h

a
s

"Swee
t

Transves
t
ite
"

and
"N
e
w

Y
o
rk
,

N
e
w

Y
o
rk
"

a
r
e

b
e
lt
e
d

o
u
t

wi
t
h

g
u
st
o
.

T
h
e
y

fl
o
o
d

t
h
e

sush
i

b
a
rs
,

bistr
o
s
,

an
d

tr
e
nd
y

cafes
.

Wh
a
t'
s

th
e

c
o
mmo
n

den
o
mi
n
a
t
o
r

a
mon
g

thi
s

c
r
o
w
d

o
f

h
i
p
,

ta
l
ente
d

w
ome
n

a
n
d

men
?

They'r
e

al
l

e
c
onomic
s

i
n
structor
s

lik
e

yo
u
r

o
w
n
,

g
a
t
h
e
r
e
d

t
o

g
r
a
d
e

a

stand
a
r
d
ize
d

n
a
tion
a
l

e
c
on
o
mic
s

e
x
a
m
.

Wh
a
t

m
a
k
e
s

e
c
on
o
mi
c
s

s
o

ex
c
i
t
i
n
g

tha
t

i
t

inspi
r
e
s

a
l
l

s
o
rts
o
f

peo
p
l
e

t
o

d
e
v
o
t
e

thei
r

liv
e
s

t
o

co
n
v
e
yi
n
g

it
s

w
i
s
d
o
m
?

The
r
e

a
r
e

m
a
n
y

a
n
s
wer
s

t
o

tha
t

q
ues
t
i
o
n
;

w
h
a
t

fol
l
o
w
s

i
s

th
e

t
i
p

o
f

t
h
e

iceber
g
.


EC
O
N
O
MIC
S

I
S

E
V
E
R
Y
W
H
E
RE

Economics doesn't simply appe
a
r in b
o
oks or l
u
rk in

bank vaults. Economics is above
y
o
u

in airplanes, below you in coal mines,

behind the f
a
bric content

of your
c
lothing,

an
d

un
d
e
r
pi
n
n
i
n
g

th
e

p
o
litic
s

o
f

yo
u
r

na
t
ion
.

Eco
n
o
m
ic
s

i
s

th
e

stud
y

o
f

limit
e
d

r
e
s
ou
r
c
e
s

an
d

u
n
limi
t
e
d

wants
.

T
h
e

b
r
o
a
d

scop
e

o
f

t
h
i
s

d
isci
p
li
n
e
re
s
u
lt
s

fr
o
m

t
h
e

l
i
m
its on virtually
e
v
e
r
y human w
a
nt. Be
y
ond money, there

are limited supplies of time,
in
f
orm
at
ion
,

c
lea
n

w
ate
r

an
d

air
,

potentia
l

spouses,
employer
s
,

employee
s
,

NC
A
A

Final

Four basketball tickets, and eve
r
ything

you w
o
uld
b
uy if you

won

the lottery.

Economics is behind
y
our choice to
g
o to
school, the

cinnamon in your latte, yo
u
r adhe
r
ence

to laws (or l
a
ck

thereof), and the public policies of your g
o
ve
r
nment.
E
c
on
o
mic
s

i
s

als
o

t
h
e

le
n
s

t
h
ro
u
g
h

which
peopl
e

wh
o

se
e
k

hap
p
i
n
es
s

sho
u
l
d

loo
k

b
e
fore

ma
k
ing
de
c
i
s
ion
s
.

Con
s
ider an e
x
amp
l
e:

Ha
v
e
y
ou e
v
er
sk
ipped

class? Skipping
i
s

a
n

opti
o
n

yo
u

conf
r
o
n
t

d
a
i
l
y
,
an
d

yo
u

m
us
t

dec
i
d
e

ho
w

of
t
e
n

t
o

t
emp
t

fa
t
e

wi
t
h

truan
c
y
.

E
conomist
s

e
x
plai
n

t
ha
t

f
i
rm
s

confron
t

the
i
r

produ
c
tio
n

d
e
cision
s

b
y

c
o
nsid
e
r
in
g

t
h
e

a
dd
i
tional

cos
t

an
d

be
nefi
t

o
f

ea
c
h

uni
t

a
n
d

m
a
nufact
u
ri
n
g

mor
e

unit
s

u
ntil

the

additional be
n
efit

no long
e
r
e
xceeds the additional cost.

If you're maximiz
i
n
g

y
o
u
r
ha
p
pi
n
e
ss
,

y
o
u

d
o

t
h
e

sam
e

th
i
n
g

w
he
n

decid
in
g

w
h
et
h
e
r

t
o

atten
d

cla
s
s.


Centr
e

Colleg
e

studen
t

Adai
r

Howel
l

skippe
d

clas
s

recentl
y

fo
r

a

Toda
y

Sh
ow

i
n
ter
v
ie
w

a
s

th
e

winn
e
r

o
f

th
e

Cosm
o

Cove
r

Mode
l

Co
n
t
e
s
t
.

I
f

skippin
g

on
e

cl
a
s
s
a
ll
o
ws

you to

launch a new career, like Adair, or to get trea
t
ment for a dead
l
y illness,

the
s
ub
s
t
an
t
i
a
l

b
en
e
fi
t

e
x
c
e
ed
s

t
h
e

l
i
mi
t
e
d

c
o
s
t

o
f

t
h
e

firs
t

c
l
as
s

missed,
whic
h

m
i
g
h
t

b
e

a

fe
w

hour
s

o
f

e
x
t
r
a

rea
d
in
g

an
d

no
t
e

cop
y
i
ng
.

T
h
e

s
e
con
d

m
o
s
t

i
m
p
o
r
t
a
n
t

rea
s
o
n

t
o

sk
i
p

clas
s

migh
t

b
e

tha
t

you
r

sport
s

t
ea
m

ha
s

a
competit
i
on
.

Th
e

t
h
i
r
d

b
e
s
t

rea
s
o
n

mi
gh
t

b
e

t
h
a
t

yo
u
'
r
e

sim
p
l
y

no
t

i
n

th
e

mood
.

A
s

th
e

reason
s

t
o

ski
p

bec
o
m
e

mo
r
e

t
r
ivi
a
l
,

t
h
e

c
o
st
s

o
f

additiona
l

misses
mou
n
t
.

I
n

running
,

the
y

sa
y

t
ha
t

i
f

yo
u

m
is
s

1

d
a
y

o
f

t
r
a
i
n
i
n
g
,

o
n
l
y

yo
u

kno
w

it
;

i
f

yo
u

mis
s

2

days
,

th
e

competit
i
o
n

k
n
ow
s

it
;

a
n
d

i
f

yo
u

mis
s

3

days
,

the

crow
d

kno
w
s

it
.

I
n

education
,

a
n

a
n
alogou
s

sto
r
y

migh
t

b
e

t
ha
t

m
i
s
s
in
g

1

da
y

o
f

c
l
a
s
s

a
ff
e
c
ts

yo
ur

c
ons
c
ie
n
c
e;

m
is
s
in
g

2

d
ay
s

a
f
f
ec
t
s

y
ou
r

grade
;

and missing
many da
y
s

affec
t
s
y
our future.


I
n

o
r
de
r

t
o

d
e
te
r
m
i
n
e

t
h
e

nu
m
b
e
r

o
f

s
ki
p
s

th
a
t

wil
l

m
a
k
e

y
o
u

a
s

we
l
l

o
f
f

a
s

po
ss
i
ble,

y
o
u should skip

until the additional ben
e
f
i
t no longer
e
x
ceeds the additional
c
o
s
t.
(Don'
t

ge
t

th
e

wron
g

impression
;

i
f

you'r
e

no
t

interv
i
e
w
i
ng
,

ill
,

o
r

bereaved
,

th
e

opt
im
a
l

nu
m
b
e
r

o
f

sk
i
p
s

ma
y

w
e
l
l

b
e

0
.
)

Wit
h

t
h
e

additiona
l

benefit
f
a
llin
g

a
n
d

t
h
e

addition
a
l

cos
t

rising
,

an
y

s
u
bse
q
uen
t

skip
s

d
o

mo
r
e

h
ar
m

tha
n

g
o
od
.

Economist
s

cal
l

t
h
e

ad
d
iti
o
n
a
l

b
en
e
fi
t

fr
o
m

1

m
o
r
e

o
f

so
m
e
t
h
i
n
g

t
he
mar
g
i
na
l

benefi
t

a
n
d

t
h
e

a
d
d
i
tio
n
al cost of 1

more of somethi
n
g the
m
arginal

cos
t
.
Thus, you should skip until the

marginal

cost equals the

marginal b
en
efit.

Yo
u

w
e
i
gh

marg
i
na
l

cost
s

ag
a
ins
t

ma
rg
ina
l

b
e
n
e
fit
s

eve
ry

d
a
y
.

Y
o
u

k
n
ow

t
ha
t
ea
ti
ng

to
o

muc
h

pi
e

ca
n

mak
e

yo
u

g
a
i
n

weight
,

b
ut

t
h
e

f
irs
t

fe
w

bit
es

creat
e

a

lo
t

of
pleasur
e

an
d

no
t

a

lo
t

o
f

weight
.

A
s

y
ou
r

hunge
r

i
s

satisfied
,

th
e

benefi
t

o
f

eac
h

add
i
ti
o
na
l

bit
e;

dec
r
ease
s

an
d

it
s

cos
t

(
i
n
term
s

o
f

exces
s
iv
e

calor
ic

i
ntake)
increas
e
s
.

Eventually
,

t
he

margina
l

cos
t

o
f

anothe
r

bit
e

o
f

p
i
e

wil
l

excee
d

it
s

margina
l

b
enefit
,

an
d

it
's

tim
e

t
o
st
o
p

eat
i
n
g
.

I
f

it
'
s

th
e

b
e
s
t

pi
e

you'v
e

ev
e
r

t
a
ste
d
,
th
e

mar
g
ina
l

benefi
t

i
s

hi
gher
,

.an
d

y
ou'll

eat

mo
r
e of

it. Som
e
times

e
v
en indige
s
tion is well

j
u
s
tified.

In 2005, high marginal
b
enefits
l
ed Timothy Janus to eat 6

pou
n
ds of s
h
oofly pie in
o
ne sitting

he won
82,00
0

an
d

f
a
m
e

a
t

th
e

Alka
-
S
eltze
r

U
.S
.

Ope
n

o
f

C
o
mpetitiv
e

E
a
tin
g
.
1

'

Th
e

stud
y

o
f

wher
e

mar
g
ina
l

benefi
t

meet
s

m
a
r
g
ina
l

c
o
s
t

lea
d
s

t
o

th
e

e
fficien
t

o
u
t

c
o
m
e
s

t
ha
t

e
c
o
n
omis
t
s

c
heri
s
h
.

Ho
w

m
a
n
y

hour
s

s
h
oul
d

yo
u

s
p
en
d

i
n

the
library
?

H
o
w

ma
n
y

l
a
p
s

shoul
d

y
o
u

swi
m

i
n

th
e

po
o
l
?

H
o
w

muc
h

tim
e

sho
u
l
d

yo
u

s
pe
n
d

i
n

t
he

s
ho
w
e
r?

T
h
e

an
s
w
er

i
s

a
l
w
a
y
s

t
h
e

s
a
me
:

Jus
t

d
o

i
t

unti
l

the
m
arg
i
na
l

b
en
e
fi
t

eq
u
a
l
s

th
e

mar
g
ina
l

c
o
s
t

an
d

yo
u

cou
l
d
n
'
t

d
o

an
y

bet
t
er.

E
C
O
NO
M
IC

TO
O
L
S

C
AN

A
D
D
R
ESS

W
E
IG
HT
Y

I
S
S
U
E
S
-

It'
s

n
o

secre
t

t
ha
t

econo
m
i
c

t
heo
r
y

help
s

businesspeopl
e

mak
e

d
e
cision
s

abou
t

prices
,

p
r
o
du
ct
i
on

le
v
els
,

an
d

m
anufac
t
urin
g

method
s

tha
t

maximi
z
e

p
r
ofits
.

Th
e

ec
onomi
c

wa
y

o
f

th
in
k
in
g

a
l
s
o

a
p
p
li
e
s

t
o

th
e

mos
t

d
if
f
i
cu
l
t

d
ilem
m
a
s

fa
c
in
g

s
o
c
iety
.

E
c
ono
m
i
c

theory
ca
n

a
ddres
s

troublin
g

p
rob
l
em
s

wit
h

p
o
v
ert
y
,

cr
i
m
e
,

p
ollutio
n
,

edu
c
atio
n
,

healt
h

ca
r
e
,

t
h
e

l
eg
a
l

sys
t
e
m
,

ch
i
l
d

c
a
r
e
,

t
r
a
n
spo
r
t
a
t
i
o
n

s
y
st
e
ms
,

wa
t
e
r

s
ho
r
t
a
g
e
s
,

p
o
p
u
l
a
t
i
on

growth
,

biodiversit
y

loss
,

sustainabl
e

development
,

an
d

energy
,

t
o

nam
e

a

few.


Con
s
ide
r

th
e

issu
e

o
f

ho
w

t
o

p
u
ni
s
h

peopl
e

wh
o

brea
k

th
e

law
.

Suppo
s
e

tha
t

ea
c
h

son
g

i
l
legal
l
y

down
l
o
ade
d

fro
m

th
e

Interne
t

co
st
s

societ
y

$
1

i
n

los
t

wage
s

f
o
r
soun
d

mixer
s
,

C
D

stor
e

emplo
y
ees
,

advertisers
,

musicians
,

an
d

other
s

i
n

th
e

recordin
g

industry
.

A
s

mentione
d

i
n

t
h
e

precedin
g

truanc
y

example
,

effi
c
i
enc
y

dicta
t
es
tha
t

eac
h

ac
t
ivit
y

shoul
d

cont
i
nu
e

unti
l

th
e

additiona
l

(o
r

marginal
)

benefi
t

equal
s

th
e

addi
t
io
na
l

(
o
r

m
a
r
g
i
na
l
)

c
o
st
.

Fo
r

s
i
m
pli
c
i
t
y
,

we'
r
e

a
s
s
u
min
g

tha
t

th
e

mar
g
inal
cos
t

o
f

downloadin
g

a

son
g

re
ma
in
s

cons
t
an
t

a
t

$
1

an
d

t
ha
t

th
e

valu
e

o
f

th
e

tim
e

spen
t

dow
n
l
o
a
d
in
g

i
s

ne
g
l
i
g
i
b
l
e
.

I
f

t
h
e

bene
f
i
t

t
o

th
e

recipien
t

fro
m

downloading
anothe
r

son
g

e
x
c
e
e
d
s

th
e

c
o
s
t

t
o

s
oc
ie
t
y
,

t
h
e

d
o
w
nlo
a
d

c
r
ea
t
e
s

a

ne
t

ga
i
n

f
o
r

s
o
c
ie
t
y

a
n
d

i
t

i
s

e
fficien
t

(
a
l
t
houg
h

s
t
il
l

i
l
l
e
g
al
)

t
o

carr
y

i
t

out.

H
o
w

ca
n

w
e

brin
g

abou
t

th
e

eff
i
cien
t

l
e
ve
l

o
f

down
l
o
ad
i
n
g
?

On
e

w
a
y

wou
l
d

b
e

t
o

suc
c
ess
f
ull
y

enfor
c
e

a

penalt
y

o
f

$
1

fo
r

eac
h

download
.

I
f

musi
c

lover
s

ha
d

t
o

pa
y

a

$
1

fin
e

pe
r

download
,

the
y

woul
d

downloa
d

onl
y

s
ong
s

tha
t

wer
e

wort
h

a
t

l
eas
t

$
1

t
o

t
h
e
m
.

I
ne
f
f
i
c
i
e
n
t

d
o
w
n
l
o
a
d
s

t
ha
t

w
e
r
e

w
o
rt
h

le
s
s

t
h
a
n

th
e

$
1

c
o
s
t

t
o

so
c
i
ety

woul
d

no
t

o
c
cur
.

T
h
e

t
r
oubl
e

i
s

tha
t

i
t

woul
d

b
e

dread
f
ull
y

e
x
pensi
v
e

t
o

provid
e

th
e

le
v
e
l

o
f

poli
c
in
g

require
d

t
o

detec
t

ever
y

download.


E
c
onomi
c

theor
y

ca
n

hel
p

wit
h

t
ha
t

p
r
oblem
,

t
oo
.

Suppo
s
e

t
h
a
t

d
o
w
n
l
o
a
d
s

we
r
e

monitore
d

on
l
y

hal
f

th
e

time
,

b
ut

onl
y

th
e

mon
i
tor
s

kne
w

whic
h

half
,

meanin
g

tha
t

half
o
f

al
l

download
s

wer
e

caught
.

W
i
th
,

a

f
i
n
e

o
f

$
2

th
a
t

wa
s

pai
d

hal
f

th
e

t
i
m
e
,

d
o
wnloade
r

s

woul
d

expec
t

t
o

pa
y

a
n

ave
r
ag
e

o
f

$
1

pe
r

son
g

downloaded
.

Tha
t

is
,

wi
t
h

a

50
percen
t

chanc
e

o
f

havin
g

t
o

pa
y

$2
,

th
e

expecte
d

fin
e

pe
r

son
g

downloade
d

woul
d

b
e

one
-
ha
l
f

t
i
me
s

$2
,

o
r

$1
.

Musi
c

lover
s

w
h
o

mad
e

decision
s

o
n

th
e

basi
s

o
f

the
expecte
d

fin
e

woul
d

stil
l

downloa
d

onl
y

whe
n

the
i
r

benef
i
t

fro
m

a

son
g

exceede
d

th
e

cos
t

t
o

society.


Th
e

expecte
d

fin
e

woul
d

als
o

b
e

$
1

i
f

ther
e

wer
e

a

l
-
in
-
1
0

chanc
e

o
f

pay
i
n
g

$10
,

a

l
-
i
n
-
1
0
0

ch
an
c
e

o
f

p
a
yi
n
g

$
1
0
0
,

o
r

a

l
-
i
n
-
1
,
00
0

c
h
an
c
e

o
f

p
a
yin
g

$1,
0
00
.

For
mus
i
c

lo
v
er
s

wh
o

don'
t

hav
e

a

parti
c
ula
r

preferen
c
e

for
,

o
r

a
v
ersio
n

to
,

ris
k

tak
i
ng
,

an
y

o
f

thes
e

comb
i
nation
s

woul
d

pro
v
id
e

t
h
e

prope
r

in
c
entiv
e

t
o

limi
t

downloads
t
o

th
e

e
f
ficien
t

number
.

Wit
h

thi
s

i
n

mind
,

la
w

enforcemen
t

cost
s

ca
n

b
e

r
edu
c
e
d

withou
t

al
t
e
r
in
g

th
e

incen
t
ive
s

t
o

obe
y

th
e

la
w

b
y

charg
i
n
g

highe
r

fine
s

an
d

only
spendin
g

enoug
h

o
n

enfo
r
cemen
t

t
o

c
a
tc
h

a

smal
l
e
r

numbe
r

o
f

o
ff
enders
.

You'
l
l

rea
d

mor
e

abou
t

th
e

e
c
ono
m
i
c
s

o
f

r
is
k

an
d

unc
er
t
ain
t
y

i
n

Par
t

8.




ECONOMI
C

FINDI
N
G
S

CA
N

B
E

SPECIFI
C

AN
D

C
OMPELLING
-

Wha
t

specia
l

power
s

d
o

peopl
e

traine
d

i
n

e
c
onomic
s

ha
v
e

tha
t

allo
w

the
m

t
o

make

stron
g

argument
s

an
d

precis
e

recommendations
?

The
y

ma
y

no
t

b
e

supe
r
heroes
,

bu
t

t
h
e
y

brand
i
s
h

adva
n
ce
d

quant
i
tat
i
v
e

too
l
s
,

deta
i
le
d

method
s

o
f

r
easoning
,

the
h
i
gh
r
oa
d

goa
l

o
f

m
a
x
i
m
i
z
in
g

s
o
c
ia
l

welfare
,

an
d

t
h
e

u
s
e

o
f

a
s
sum
p
t
ion
s

t
o

lea
p

t
al
l

c
om
plexitie
s

i
n

a

singl
e

bound
.

Let'
s

loo
k

a
t

eac
h

o
f

thes
e

power
s

i
n

turn.




Quan
t
i
t
a
t
ive

T
ools
-

E
cono
mi
s
t
s

de
l
v
e

de
ep
l
y

int
o

qu
a
nt
i
t
a
t
i
v
e

m
e
t
h
od
s

th
a
t

y
i
e
l
d

p
r
e
c
is
e

a
nsw
e
r
s

t
o

im
p
or
t
an
t

que
st
ion
s
.

Be
c
au
s
e

e
c
ono
m
i
c
s

i
s

abo
u
t

th
e

r
e
alities

facin
g

eac
h

o
f

u
s

o
n

a

dail
y

ba
s
is
,

t
h
e

m
ea
t
ies
t

t
opi
c
s

wi
t
hi
n

economic
s

ar
e

concret
e

an
d

visibl
e

an
d

ca
n

b
e

discusse
d

withou
t

ad
v
an
c
e
d

m
ath
,

a
s

i
s

t
h
e

ca
s
e

i
n

t
h
is
book
.

I
f

thi
s

expositio
n

whet
s

you
r

appeti
t
e

fo
r

a
n

under
s
tandin
g

o
f

th
e

m
o
r
e

r
i
gorou
s

s
id
e

o
f

e
c
ono
m
ic
s
,

yo
u

wil
l

encounte
r

ma
t
he
m
a
t
i
c
a
l

m
odel
s

i
n

o
t
he
r

tex
t
book
s


bu
t

the
y

wil
l

tur
n

ou
t

t
o

b
e

m
o
r
e

st
rai
g
h
t
f
o
r
w
ar
d

tha
n

the
y

look
,

agai
n

be
c
au
s
e

the
y

a
r
e

s
i
m
pl
y

rep
r
e
s
en
t
ation
s

o
f

s
i
t
u
ation
s

t
ha
t

w
e

al
l

experien
c
e

i
n

dail
y

life
.

A
s

you

rea
d

o
n

abou
t

econo
m
i
c

findings
,

yo
u

ma
y

wel
l

be
c
om
e

persuade
d

tha
t

th
e

evidenc
e

gaine
d

b
y

apply
i
n
g

quantita
t
i
v
e

tool
s

pro
v
ide
s

bene
f
it
s

tha
t

fa
r

excee
d

any
associate
d

costs.


Fo
r

exa
m
ple
,

yo
u

hav
e

p
r
obabl
y

h
e
ar
d

peopl
e

debatin
g

whe
t
he
r

forest
s

shoul
d

b
e

c
u
t

fo
r

lumbe
r

o
r

preserve
d

t
o

protec
t

spe
c
ie
s

s
uc
h

a
s

th
e

s
potte
d

owl
.

T
han
k
s

to
quantitative tools, economi
s
ts can advance this debate from "Gee, t
h
e birds are great, but we
w
ant

more homes and jobs, so we'
r
e confused" to "The long
-
term cost of saving
the

owl

in

terms

of

logging

jobs

and

tim
b
er

prices

is

$0.62

mill
i
on,

whereas

the

l
o
ng
-
t
e
r
m

v
a
l
u
e

o
f

o
w
l

p
r
e
s
e
rv
a
t
i
o
n

t
o

h
u
m
a
n
s

i
s

$1
.
8
4

m
i
llion
,

s
o

ther
e
'
s

a

$1
.
2
2

m
i
llion
ne
t

ga
i
n

f
r
o
m

s
a
v
i
n
g

t
h
e

o
w
ls
"

(
pa
r
a
p
h
r
a
s
e
d

fr
o
m

a

1
9
9
1

s
t
u
d
y

b
y

R
u
b
in
,

Helmand,

and

Loomis

figures

adjusted

for

inflation).

S
u
re,

estimates

m
a
y

differ;

de
p
e
ndin
g

o
n

th
e

resear
c
h

metho
d

an
d

th
e

u
n
derlyin
g

assump
t
i
ons
,

bu
t

i
t

i
s

usefu
l

t
o

obt
ai
n

ob
j
ect
i
ve

e
s
t
i
mates

of

the

costs

and

benefits

of

such

decisions

as

an

alternative

t
o

act
i
n
g
purel
y

o
n

th
e

basi
s

o
f

gu
t

feeli
n
g
s

an
d

stab
s

i
n

th
e

dark
.

Th
e

quantita
t
iv
e

tool
s

o
f

econo
m
ic
s

mak
e

the
s
e

estimate
s

pos
s
i
ble.

Economic Reasonin
g
-

Th
e

c
r
u
x

o
f

economi
c

reasoning
,

a
s

y
o
u'
v
e

alread
y

rea
d

i
n

thi
s

c
h
apter
,

i
s

th
a
t

an
y

activit
y

sh
oul
d

b
e

continue
d

unti
l

th
e

additiona
l

benef
i
ts
fro
m

doin
g

s
o

n
o

longe
r

excee
d

th
e

additiona
l

costs
.

Consideratio
n

o
f

thes
e

cost
s

an
d

benefit
s

ca
n

yie
l
d

speci
f
i
c

estima
t
e
s

o
f

jus
t

ho
w

lou
d

a

s
o
un
d

s
ys
t
e
m

shoul
d

be,
h
o
w

l
o
n
g

o
n
e

s
h
ou
l
d

s
u
n
b
a
t
h
e

o
n

th
e

beach
,

ho
w

lo
w

a

thermosta
t

shoul
d

b
e

set
,

an
d

ho
w

fa
r

on
e

shoul
d

g
o

i
n

sc
h
ool
.

Th
e

avai
l
a
b
ilit
y

o
f

specifi
c

answer
s

to
commo
n

puzzle
s

i
s

on
e

reaso
n

wh
y

som
e

peopl
e

ge
t

excite
d

a
b
ou
t

economics.


Here'
s

a
n

example
:

Usin
g

infor
m
atio
n

o
n

th
e

cost
s

an
d

benefit
s

o
f

goin
g

t
o

schoo
l

f
o
r

e
a
c
h

ye
a
r
,

st
ud
ent
s

ca
n

pi
n
poin
t

th
e

be
s
t

plan
s

fo
r

t
h
ei
r

forma
l

educations.
Jennif
e
r

Da
y

an
d

E
r
i
c

N
e
wbu
r
g
e
r

st
u
d
ie
d

t
h
e

a
v
e
r
a
g
e

a
nn
u
a
l

i
n
com
e

o
f

f
u
ll
-
t
i
m
e

w
ork
e
r
s

i
n

t
h
e

Uni
t
e
d

S
t
a
t
e
s
.
2

Relativ
e

t
o

a

per
s
o
n

wit
h

s
om
e

hig
h

s
c
hoo
l

edu
c
ation
bu
t

n
o

diploma
;

the
y

foun
d

t
ha
t

t
h
e

averag
e

wor
k
e
r

wit
h

a

hig
h

s
c
hoo
l

diplom
a

ea
r
n
s

abou
t

$7,00
0

mor
e

ea
c
h

y
ear
.

W
o
rke
r
s

wi
t
h

b
a
c
helor'
s

degr
e
e
s

ear
n

$22,000
mor
e

tha
n

th
e

hig
h

schoo
l

graduates
,

an
d

thos
e

wit
h

profes
s
i
ona
l

d
egree
s

ear
n

$57,0
0
0

o
n

to
p

o
f

that.
3

The
s
e

f
i
nan
c
i
a
l

bene
f
it
s

ar
e

augmen
t
e
d

b
y

a
n
y

nonfinan
c
ial
b
e
ne
f
i
t
s

a

p
a
rt
i
c
ul
ar

person

would

receive

f
r
om the

higher
-
paying

jobs

to

which

education

provides

ac
c
ess,

such

as

more

job

security, lighter physi
c
al burdens, and cleaner
wo
r
k
i
ng

c
o
nd
i
t
i
ons
.

Fo
r

comparison
,

th
e

direc
t

cost
s

o
f

goin
g

t
o

schoo
l

fo
r

anothe
r

yea
r

ar
e

readi
l
y

a
va
il
a
b
l
e

typ
i
ca
ll
y

a
bout

$25,000

for

each

year

of

college.

The
s
e
costs

can

be
c
o
m
b
i
n
e
d

w
i
t
h

t
h
e

c
o
s
t

o
f

f
o
r
g
o
i
n
g

wo
r
k

t
o

g
o

t
o

sc
h
o
o
l

a
n
d

w
i
t
h

t
h
e

n
on
f
i
n
an
ci
a
l

bu
r
den
s

o
f

schoo
l

t
o

determin
e

t
h
e

appropriat
e

education
a
l

goal
s

fo
r

a
pa
r
t
i
cu
l
a
r

s
tudent.
Se
c


w
ww.census.gov/prod
/
2002pubs/p23
-
210.pdf.
3

Th
e

learnin
g

associate
d

wit
h

diploma
s

i
s

onl
y

par
t

o
f

th
e

reaso
n

fo
r

highe
r

earnings
.

Emp
l
oyers
u
s
e

e
d

ucationa
l

attainmen
t

a
s

a
n

indicatio
n

o
r

"signal
"

o
f

associate
d

attribu
t
es
,

suc
h

a
s

intelligenc
e

an
d

diligence
,

t
ha
t

m
ak
e

fo
r

mor
e

productiv
e

workers.




Clear and Defensible Objectives
-


Economi
c

analysi
s

ca
n

b
e

applie
d

i
n

myria
d

context
s

t
o

pursu
e

ob
j
ective
s

rangin
g

fro
m

prof
i
t

maxim
i
zatio
n

t
o

ever
l
ast
i
n
g
bliss
.

Whe
n

economist
s

c
on
s
ide
r

publi
c

policy
,

th
e

defaul
t

goa
l

i
s

th
e

greate
s
t

possibl
e

ne
t

gai
n

t
o

s
ociety
.

Thi
s

goa
l

i
s

a
c
hiev
e
d

b
y

add
r
e
s
sin
g

ques
t
ion
s

o
f

what,
how
,

an
d

f
o
r

who
m

t
o

produ
c
e

wi
t
h

a
n

ey
e

o
n

ef
f
iciency
.

Thin
k

o
f

efficienc
y

a
s

maximizin
g

t
h
e

s
i
z
e

o
f

t
h
e

"pie
"

t
ha
t

rep
r
e
s
ent
s

s
o
c
ia
l

veil
-
being
,

p
r
o
f
it
,

per
s
onal
happiness
,

o
r

an
y

othe
r

particula
r

objective
.

A
s

we'l
l

discu
s
s

i
n

g
r
ea
t
e
r

de
t
a
i
l

i
n

Pa
r
t

6
,

e
ffic
i
e
n
t

ou
tco
m
e
s

e
x
h
au
s
t

a
l
l

op
po
rtunitie
s

fo
r

ne
t

g
a
i
n
s
.


Onc
e

t
h
e

ne
t

gain
s

f
r
o
m

gove
r
n
men
t

poli
c
ie
s

a
r
e

ma
x
i
mized
,

societ
y

mus
t

g
r
appl
e

wit
h

th
e

equit
y

consideratio
n

o
f

ho
w

t
o

divid
e

th
e

pi
e

amon
g

potentia
l

recipients
.

F
o
r
e
x
a
mp
le
,

pu
b
l
i
c

l
an
d
s

co
u
l
d

b
e

o
p
e
n
e
d

t
o

l
o
g
ge
r
s
,

s
o
l
d

t
o

d
e
v
e
l
o
p
e
rs
,

m
a
in
t
a
i
n
e
d

a
s

Da
r
k
s

fo
r

tourists
,

o
r

donate
d

t
o

th
e

homeless
.

I
t

woul
d

b
e

efficien
t

t
o

us
e

t
h
e

lan
d

"
o
r

t
h
e

pu
r
po
s
e

t
ha
t

p
r
o
v
i
d
e
s

t
h
e

g
r
e
a
t
e
s
t

o
v
e
r
a
l
l

ne
t

b
e
ne
f
i
t
s
,

bu
t

t
h
e

m
o
s
t

e
ff
i
c
i
en
t

o
u
tc
o
m
e

o
ft
e
n

c
o
n
fl
i
c
t
s

w
i
t
h

e
q
u
i
t
y

con
s
idera
t
ions
.

T
h
e

g
r
eates
t

ne
t

benef
i
t
s
m
i
g
h
t

com
e

fro
m

a

park
,

bu
t

interest
s

i
n

equit
y

poin
t

towar
d

helpin
g

th
e

homeless
.

E
c
o
n
o
m
i
st
s

st
u
d
y

t
a
x
es
,

s
u
bs
i
d
i
e
s
,

a
n
d

e
n
t
i
t
le
m
en
t

progra
m
s

tha
t

c
a
n
distribu
t
e

th
e

g
a
i
n
s

f
r
o
m

eff
i
c
i
enc
y

i
n

a

m
o
r
e

equitabl
e

manner
.

Fo
r

example
,

i
f

a

par
t
i
cu
l
a
r

t
r
ac
t

o
f

publi
c

lan
d

woul
d

b
e

mo
r
e

valuabl
e

t
o

par
k

visitor
s

tha
n

t
o

the
ho
m
e
l
e
s
s
,

t
h
e

b
e
s
t

solutio
n

migh
t

b
e

t
o

creat
e

a

par
k

o
n

th
e

l
and
,

impos
e

a

ta
x

o
n

visitors
,

an
d

us
e

th
e

t
a
x

r
e
v
e
nu
e
s

t
o

p
a
y

f
o
r

ho
m
ele
s
s

shel
t
er
s

elsewhere.


I
n
2006
,

th
e

U.S
.

Fores
t

Se
r
vic
e

sough
t

t
h
e

sal
e

o
f

200
,
00
0

ac
r
e
s

o
f
publi
c

lan
d

t
o

rais
e

abou
t

$
8
0
0

m
i
l
l
io
n

fo
r

s
c
ho
o
l
s

an
d

r
o
a
d

maintenanc
e

i
n

u
n
de
r
pri
v
ilege
d

ru
r
a
l
areas.
4

Th
e

W
i
ldernes
s

Societ
y

argue
d

tha
t

th
e

l
an
d

w
ou
l
d

b
e

mor
e

va
l
u
abl
e

t
o

th
e

countr
y

i
f

i
t

r
e
maine
d

i
n

publi
c

hands
.
5
»Suppos
e

th
e

l
a
n
d

i
s

wort
h

$80
0

million
t
o

th
e

pr
i
v
at
e

i
nd
i
v
i
dua
l
s

w
h
o

woul
d

purchas
e

i
t

an
d

$
1

billio
n

t
o

th
e

broade
r

U
.
S
.

c
i
t
i
ze
n
r
y
.

I
n

t
ha
t

c
a
s
e
,

th
e

ef
f
i
c
i
en
t

so
lutio
n

i
s

t
o

maximiz
e

th
e

siz
e

o
f

th
e

pie

the
benefit
s

fro
m

thi
s

land

b
y

maintainin
g

publi
c

ownership
.

Wit
h

creativ
e

slicin
g

o
f

th
e

pie
,

t
h
e

go
a
l
s

o
f

t
h
e

lan
d

s
a
l
e

ca
n

b
e

a
c
hieve
d

eve
n

i
f

t
h
e

l
a
n
d

i
s

no
t

sold
.

F
o
r
examp
l
e
,

th
e

publi
c

bene
f
iciarie
s

o
f

th
e

$
1

billio
n

wor
t
h

o
f

lan
d

coul
d

b
e

ta
x
e
d

$80
0

mill
i
o
n

t
o

pa
y

fo
r

rur
a
l

school
s

an
d

roa
d
s
.

I
n

thi
s

way
,

th
e

lan
d

woul
d

b
e

used
fo
r

it
s

mos
t

val
u
e
d

pu
r
po
s
e
,

th
e

rura
l

a
rea
s

w
o
ul
d

b
enefi
t

a
s

u
n
d
e
r

a

lan
d

s
a
le
,

an
d

th
e

U.S
.

pu
b
l
i
c

woul
d

rece
i
v
e

a

$20
0

mill
i
o
n

ne
t

gai
n

eq
ua
l

t
o

th
e

$
1

billio
n

in
b
e
ne
f
i
t
s

fr
o
m

t
h
e

lan
d

minu
s

th
e

$80
0

millio
n

i
n

ne
w

taxes
.

w
w
w
.
m
anbc.msn.com/idyiI257m/




Simplifying

A
ssumptio
ns
-

Sometime
s

les
s

i
s

more
.

Jus
t

a
s

i
t
'
s

easie
r

t
o

follo
w

a

ma
p

tha
t

i
s
n'
t

muddle
d

wit
h

m
ar
k
ing
s

fo
r

ever
y

tree
,

telephon
e

wi
r
e
,

an
d

parking
s
pa
c
e
,

r
esea
r
che
r
s

f
in
d

s
i
m
pli
f
i
cation
s

usefu
l

whe
n

s
t
udyin
g

caus
e

an
d

effect
.

Conside
r

th
e

commo
n

assumptio
n

o
f

cete
r
i
s

pa
r
i
bus
,

a

La
t
i
n

p
h
ra
s
e

meanin
g

that
in
f
l
u
e
n
c
e
s

o
t
he
r

t
h
a
n

t
h
e

o
n
e

b
e
i
n
g

s
t
u
d
ie
d

remai
n

unchanged
.

Suppos
e

Lanc
e

Armstron
g

i
s

bikin
g

dow
n

a

mountai
n

a
t

4
0

m
i
le
s

pe
r

hou
r

(mph
)

an
d

get
s

a

flat
t
i
r
e
.

H
o
w

w
il
l

h
i
s

s
pe
e
d

b
e

a
ff
e
c
t
e
d
?

A
d
m
i
tt
e
d
ly
,

many

elements

might

come

into

play.

If

the

tire

blew

out

as

Lance

flew

o
v
er

a

guardrail

and

wen
t

i
nt
o

a

f
r
e
e

fa
ll
,

h
i
s

spee
d

woul
d

increase
.

We
t

roads
,

a

collision
,

o
r

fatigu
e

woul
d

a
l
l

reduc
e

hi
s

spee
d

an
d

reinforc
e

th
e

influenc
e

o
f

th
e

fla
t

ti
r
e
.

Som
e

peopl
e



migh
t

thro
w

u
p

their
hand
s

an
d

sa
y

it'
s

impossibl
e

t
o

determin
e

fo
r

sur
e

wha
t

woul
d

happe
n

t
o

Lance'
s

spee
d

whe
n

hi
s

t
i
r
e

wen
t

f
l
a
t
.

A
n

economis
t

i
s

mor
e

likel
y

t
o

say
,

"Ceteri
s

paribus
,

th
e

bik
e

wil
l

sl
o
w

down.
"

Th
e

e
c
on
o
mis
t

i
s

a
ss
u
m
i
n
g

t
h
a
t
,

e
x
c
ep
t

f
o
r

t
h
e

b
l
o
w
o
u
t
,

a
l
l

e
l
e
m
e
n
t
s

o
f

t
h
e

s
i
t
ua
t
i
on

t
h
e

weather
,

th
e

bike
r
'
s

up
r
i
g
h
t

po
s
i
tion
,

an
d

s
o

on

w
il
l

remai
n

th
e

same
.

Th
e

c
e
t
e
r
i
s

paribu
s

assumptio
n

allow
s

th
e

econom
i
s
t

t
o

addres
s

th
e

issu
e

i
n

quest
i
o
n

without
be
i
n
g

hampere
d

b
y

c
o
mple
x
i
ties
.

Rathe
r

tha
n

neglectin
g

o
t
he
r

influence
s

whil
e

ma
k
i
n
g

a
n

estimat
e

o
f

speed
,

th
e

economis
t

ca
n

stud
y

eac
h

influenc
e

independent
l
y,
wit
h

t
h
e

a
s
s
u
m
p
ti
o
n

th
a
t

th
e

other
s

remai
n

unchanged
.

Economist
s

us
e

th
e

ce
t
e
r
i
s

p
a
r
i
b
u
s

as
sumptio
n

whe
n

studying
,

fo
r

examp
l
e
,

th
e

effec
t

o
f

consume
r

demand
o
n

pr
i
ce
s

o
r

th
e

effec
t

o
f

labo
r

union
s

o
n

employe
e

benefits
.

I
n

reali
t
y
,

deman
d

change
s

oft
e
n

coincid
e

wit
h

change
s

i
n

productio
n

cos
t
s

t
ha
t

al
s
o

af
f
ec
t

p
r
i
c
e
s
,

and
unionizatio
n

i
s

on
e

o
f

man
y

deter
m
inant
s

o
f

employe
e

bene
f
i
t
s
;

h
o
wever
,

i
t

i
s

use
f
u
l

t
o

i
s
ola
t
e

in
f
lu
en
ce
s

an
d

as
s
es
s

the
m

on
e

a
t

a

time
.

I
n

th
e

end
,

economist
s

c
a
n
combin
e

thei
r

dat
a

o
n

ind
i
v
i
dua
l

influence
s

t
o

dete
r
min
e

th
e

r
e
sul
t

o
f

severa
l

si
mu
lta
n
eou
s

changes
,

w
h
ere
a
s

s
k
eptic
s

wh
o

don'
t

lik
e

t
o

mak
e

assumption
s

ar
e

in
fre
e

fal
l

wit
h

a

headache.

A
n
o
t
h
e
r

n
o
t
e
wo
r
t
h
y

a
n
d

c
on
tr
o
v
e
r
si
a
l

a
s
s
u
m
p
t
i
o
n

i
s

t
ha
t

i
n
d
i
v
i
d
u
a
l
s

b
e
h
a
v
e

r
a
ti
o
n
ally
.

I
n

Chapte
r

2
,

w
e

conside
r

c
ompellin
g

evidenc
e

an
d

implication
s

o
f

rationa
l

reasoning
.

A
s
s
o
ci
a
t
e
d

wi
t
h

t
h
e

r
a
tio
n
al
i
t
y

a
s
su
m
p
tio
n

a
r
e

e
x
pecta
t
ion
s

tha
t

w
e

pre
f
e
r

mo
r
e

o
f

a

goo
d

thing
,

hav
e

goa
l
s
,

lea
r
n
,

an
d

a
r
e

c
onsisten
t

enoug
h

i
n

t
r
ansi
t
i
v
e

preferen
c
e
s.
S
u
p
p
o
s
e

y
o
u

prefe
r

jaz
z

t
o

re
g
g
a
e

m
u
si
c

yo
u

prefe
r

regga
e

t
o

c
l
assica
l

music
.

Give
n

a

choic
e

betwee
n

jaz
z

an
d

classical
,

wha
t

typ
e

o
f

musi
c

woul
d

yo
u

select
?

I
f

the
answe
r

i
s

jazz
,

yo
u

ar
e

exhibitin
g

th
e

rati
o
nalit
y

o
f

tran
s
i
t
i
v
e

pre
f
erenc
e
s

be
c
au
s
e

you
r

respon
s
e

i
s

con
s
isten
t

wit
h

you
r

p
r
e
f
e
re
n
c
e

orderin
g

o
f

jaz
z

f
i
rst
,

the
n

reggae,
an
d

the
n

classica
l

mus
i
c
.

A
n

answe
r

o
f

classica
l

musi
c

woul
d

vio
l
at
e

tha
t

r
a
t
i
o
n
a
l
i
ty
.

M
o
r
e

g
e
ne
r
a
l
l
y
,

e
c
o
n
o
mist
s

a
s
s
u
m
e

t
h
a
t

a
pprop
r
ia
t
e

de
c
ision
s

t
o

maximi
z
e

t
h
e
i
r
happine
s
s

an
d

tha
t

maxi
miz
e

thei
r

profits.


I
s

i
t

r
a
tiona
l

t
o

assum
e

tha
t

peopl
e

behav
e

r
a
tionally
?

Economist
s

thin
k

s
o

fo
r

severa
l

reas
o
n
s
.

W
i
thou
t

transitiv
e

pref
e
r
ence
s

i
t

woul
d

b
e

painfull
y

difficul
t

t
o

mak
e

com
mo
n

de
c
i
s
ions
.

I
f

yo
u

li
k
e
d

col
a

bette
r

t
h
a
n

water
,

juic
e

bette
r

tha
n

cola
,

an
d

(i
n

v
i
olatio
n

o
f

transitiv
i
t
y
)

wa
t
e
r

b
e
tt
e
r

t
ha
n

juice
,

yo
u

woul
d

cycl
e

throug
h

thes
e

cho
i
ces
endlessl
y

a
n
d

spen
d

f
a
r

to
o

muc
h

tim
e

i
n

th
e

beverag
e

aisl
e

o
f

th
e

groc
e
r
y

s
t
or
e
.

F
irm
s

wi
t
h

m
ana
g
e
r
s

wh
o

be
h
a
v
e

i
rrat
i
o
n
a
ll
y

a
r
e

unli
k
el
y

t
o

las
t

long
,

an
d

th
e

sa
m
e
co
u
l
d

b
e

sai
d

o
f

people
.

Anyon
e

wh
o

eat
s

nail
s

an
d

sleep
s

i
n

swimmin
g

pool
s

i
s

unlikel
y

t
o

surviv
e

t
o

pas
s

hi
s

o
r

he
r

irrationa
l

gene
s

o
n

t
o

th
e

nex
t

generation
.

Do
busines
s

manager
s

s
t
ud
y

th
e

g
r
aph
s

an
d

equa
t
ion
s

tha
t

indicat
e

pr
o
f
i
t
-
m
a
x
i
mi
z
in
g

p
r
i
ce
s

an
d

qua
n
t
i
t
ies
?

S
ometime
s

t
he
y

do
,

an
d

othe
r

time
s

the
y

ma
y

us
e

l
e
ss
forma
l

analyse
s

t
o

de
ri
v
e

simil
a
r

c
o
nclusion
s
.

Likewise
,

No
b
e
l

laur
e
at
e

Milt
o
n

F
rie
d
ma
n

note
s

tha
t

althoug
h

exper
t

poo
l

player
s

don'
t

reall
y

measur
e

al
l

the
angle
s

an
d

distance
s

betwee
n

billiar
d

ball
s

o
n

a

poo
l

tabl
e

o
r

mak
e

comple
x

mathematica
l

calculation
s

t
o

f
i
n
d

th
e

spee
d

an
d

tr
a
jector
y

wi
t
h

whic
h

t
o

strik
e

th
e

ball,
the
y

ofte
n

tak
e

thei
r

s
ho
t
s

a
s

i
f

t
he
y

did.


O
f

course
,

al
l

o
f

u
s

h
av
e

t
hos
e

mo
r
n
i
n
g
s

w
h
e
n

w
e

star
t

t
o

bru
s
h

ou
r

h
a
i
r

wi
t
h

ou
r

toothbrushe
s

an
d

pou
r

orang
e

juic
e

int
o

ou
r

c
ereal
.

Economi
c

theor
y

ca
n

endure
a

fe
w

m
i
sstep
s

b
y

individual
s

o
r

eve
n

a

fe
w

peopl
e

wh
o

neve
r

ge
t

thing
s

right
.

Econom
i
c

th
e
o
r
y

y
i
e
l
d
s

u
s
e
fu
l

c
o
n
cl
u
si
o
n
s

a
s

l
o
n
g

as
,

o
n

a
v
e
r
age
,

pe
op
l
e
'
s

d
e
c
i
s
i
ons
a
r
e

m
o
r
e

rat
i
ona
l

tha
n

random
,

an
d

that'
s

tru
e

fo
r

mos
t

o
f

u
s

eve
n

o
n

a

ba
d

day.


The
r
e

a
r
e

a

numbe
r

o
f

s
chool
s

o
f

th
o
ugh
t

i
n

eco
n
omic
s

tha
t

p
l
ac
e

di
ffe
r
en
t

e
m
phase
s

o
n

potentia
l

limit
s

t
o

huma
n

rationality
.

Th
e

institu
t
ionalists
,

in
s
pi
r
e
d

b
y

the
like
s

o
f

Thorstei
n

Veble
n

an
d

Wesle
y

M
i
tchel
l
,

emphasiz
e

soc
i
al
,

inst
i
tutional
,

an
d

his
t
o
r
i
c
a
l

c
on
st
ra
in
t
s

o
n

r
a
t
i
o
n
a
l
i
ty
,

i
n
c
ludin
g

preda
t
or
y

an
d

acq
u
isi
t
i
v
e

d
r
ive
s

an
d

in
stinct
s

f
o
r

workmanshi
p

an
d

parentin
g
.

The
y

a
r
gu
e

tha
t

man
y

de
c
i
s
i
o
n
s

ar
e

mad
e

o
n

th
e

ba
s
i
s

o
f

rule
s

o
f

thum
b

a
n
d

tha
t

ther
e

a
r
e

bound
s

o
n

ra
t
i
onality
.

I
n
c
on
trast
,

t
h
e

Chi
c
ag
o

s
c
hool
,

who
s
e

c
u
rren
t

patria
r
ch
s

in
c
lud
e

Mil
t
o
n

F
r
iedma
n

an
d

G
a
r
y

Be
c
ker
,

i
s

mor
e

optimisti
c

tha
t

humans
-
ca
n

reliabl
y

b
e

treate
d

a
s

rational
actors
.

Chicag
o

s
c
h
oo
l

e
c
o
n
o
m
i
st
s

de
f
e
n
d

t
h
e

r
a
t
i
o
n
a
l
i
t
y

o
f

e
v
e
r
y
t
h
i
n
g

fr
o
m

f
a
mi
l
y

d
yn
a
mic
s

t
o

d
r
u
g

a
d
d
icti
on
.

A
s

u
s
u
a
l
,

e
a
c
h

s
id
e

m
a
k
e
s

vali
d

points
,

an
d

th
e

tru
t
h
p
r
o
b
a
b
l
y

li
e
s

s
o
m
e
whe
r
e

i
n

th
e

m
i
dd
l
e
.

E
i
the
r

way
,

r
es
t

assu
r
e
d

tha
t

th
e

i
mp
o
r
tanc
e

o
f

ec
o
nom
i
c

the
or
y

doe
s

no
t

requir
e

human
s

t
o

b
e

p
e
rf
e
ct.



CONCLUSION

Thank
s

fo
r

givin
g

econo
m
i
c
s

a

try
.

W
it
h

the
s
e

reading
s

an
d

thi
s

cours
e

unde
r

you
r

b
elt
,

y
o
u

w
il
l

b
e
co
m
e

mo
r
e

a
d
e
p
t

a
t

m
ak
i
n
g

w
is
e

d
e
cisions,
al
l
o
ca
t
in
g

resources
,

an
d

m
a
xi
m
izin
g

th
e

satis
f
a
ctio
n

o
f

yoursel
f

an
d

socie
t
y
.

Rega
r
d
les
s

o
f

w
h
ethe
r

yo
u

cho
o
s
e

t
o

j
o
i
n

t
h
e

s
u
r
fers
,
singers
,
jocks
,
and
k
a
r
a
ok
e
s
i
n
g
e
r
s

w
h
o

h
a
v
e

de
vo
te
d
th
e
i
r
p
ro
f
es
siona
l

live
s

t
o

th
e

scien
c
e

o
f

e
c
onomics
,

i
t
'
s

a

goo
d

be
t

th
a
t

th
e

ben
e
fit
s

yo
u

receiv
e

f
ro
m

thi
s

cours
e

will
excee
d

th
e

costs
,

an
d

tha
t

m
ake
s

i
t

a

m
os
t

ef
f
i
cien
t

an
d

wor
t
hwhil
e

u
ndertaking.


DISCUSS
I
ON S
T
AR
T
ERS




'
'D
o

la
w

enforce
m
en
t

agencie
s

reall
y

see
k

a
n

efficien
t

a
m
oun
t

o
f

l
a
wbreakin
g

rathe
r

tha
n

n
o

lawbreaking
?

Conside
r

som
e

illega
l

activitie
s

th
a
t

m
i
ght
s
o
m
etime
s

creat
e

mor
e

har
m

tha
n

good
.

Ho
w

d
o

penaltie
s

fo
r

thes
e

c
r
i
m
e
s

c
o
m
p
a
r
e

wi
t
h

t
h
e

p
e
na
ltie
s

f
o
r

crime
s

tha
t

a
re

les
s

likel
y

eve
r

t
o

b
e

e
ff
icien
t
?

H
o
w
mu
c
h

shou
l
d

peopl
e

b
e

fine
d

fo
r

doin
g

so
me
t
hin
g

tha
t

w
e

re
a
ll
y
:
:
wan
t

t
o

prohibi
t

f
r
o
m
eve
r

happening?



HO
W

PEOPL
E

MAK
E

DECIS
I
ONS

Econ
o
mic
s

i
s

th
e

s
t
ud
y

of

ho
w

s
o
c
i
e
t
y

man
a
ge
s

it
s

scar
ce

r
e
sou
r
ces
.

I
n

mo
st

so
c
i
e
ties
,

resou
r
ce
s

ar
e

al
l
o
c
a
te
d

n
o
t

b
y

a
n

all

po
we
rfu
l

dictato
r

b
ut

th
r
o
ugh

th
e

combine
d

acti
o
n
s

o
f

m
i
ll
i
on
s

o
f

ho
u
s
e
h
o
l
d
s

a
n
d

f
i
rm
s
.

Economists

th
e
r
e
f
o
r
e

stud
y

h
o
w

peopl
e

m
a
k
e

decisi
o
ns
:

ho
w

muc
h

t
h
e
y

w
o
rk
,

w
h
a
t

t
h
ey

bay
/

ho
w

m
u
c
h

t
h
e
y

s
a
ve
,

an
d

ho
w

th
e
y

i
n
v
e
s
t

thei
r

sa
v
i
n
g
s
.

Econ
o
mist
s

al
s
o

s
t
ud
y

h
o
w

p
e
o
p
l
e

i
n
te
r
a
c
t

wi
t
h

o
n
e

an
ot
h
e
r
.

F
o
r

instance
,

t
h
e
y

ex
a
m
i
n
e

how

th
e

m
u
ltit
u
d
e

of

buyers

a
nd

sellers

of

a

good

toge
t
her

determine

the

price

a
t

which

the

good

i
s

s
o
l
d

an
d

th
e

q
u
a
n
tit
y

th
a
t

i
s

s
o
ld
.

F
i
nall
y
,

econom
i
s
t
s

a
n
a
l
yz
e

forces

an
d

t
r
en
d
s

tha
t

affec
t

t
he

e
c
onom
y

as

a

whole
,

includ
i
ng

th
e

g
r
owt
h

i
n

a
v
e
r
ag
e

in
c
o
me
,

th
e

fractio
n

o
f

th
e

popul
a
tio
n

tha
t

can
n
o
t

fin
d

wo
r
k
,

a
n
d

th
e

r
a
t
e

at

which

price
s

a
r
e

rising.


Althoug
h

th
e

s
t
ud
y

o
f

e
c
onomic
s

ha
s

man
y

facets
,

th
e

fiel
d

i
s

u
n
i
f
ie
d

b
y

s
e
v
era
l

centra
l

i
d
eas
.

I
n

t
h
is

chapter
,

w
e

loo
k

a
t

Te
n

P
r
in
c
i
ple
s

o
f

Economics
.

Don'
t

wor
r
y

if

yo
u

d
o
n'
t

understan
d

t
h
e
m

a
l
l

a
t

fir
s
t

o
r

i
f

yo
u

d
o
n'
t

fi
n
d

the
m

com
pletel
y

c
o
n
vi
nc
i
n
g.

I
n

late
r

chap
t
e
r
s
,

w
e

wil
l

ex
p
lor
e

thes
e

i
d
ea
s

mo
re

ful
l
y
.

Th
e

t
en

p
r
incip
l
es

ar
e

intr
o
duce
d

her
e

t
o

giv
e

y
o
u

a
n

overvie
w

o
f

w
h
a
t

e
c
o
no
m
i
c
s

i
s

al
l

ab
o
u
t
.

Y
O
U

c
a
n

t
h
i
n
k

o
f

t
h
i
s

ch
a
p
t
e
r

a
s

a

"p
re
vie
w

o
f

comin
g

a
t
tr
ac
tio
n
s."



Te
n

Principle
s

o
f

Economic
s

Th
e

wor
d

econom
y

come
s

fr
o
m

th
e

Gree
k

wor
d


oikono
m
o”
,

whic
h

mea
n
s

"on
e

w
h
o

ma
na
g
e
s

a

h
o
us
e
ho
l
d
.
"

A
t

firs
t,

t
h
i
s

or
igi
n

might
see
m

p
e
cul
i
ar
.

Bu
t

i
n

f
ac
t
,

household
s

an
d

economie
s

hav
e

muc
h

i
n

c
o
mmon.

A

househol
d

face
s

man
y

decisions
.

I
t

mu
s
t

decid
e

whic
h

member
s

o
f
th
e

househol
d

d
o

whic
h

t
ask
s

an
d

w
ha
t

eac
h

m
e
m
be
r

ge
t
s

i
n

r
e
t
urn
:

Wh
o

cook
s

dinner
?

Wh
o

doe
s

th
e

laundry?
Wh
o

get
s

th
e

extr
a

desser
t

a
t

dinner
?

Wh
o

ge
t
s

t
o

choos
e

wha
t

T
V

sho
w

t
o

wa
t
ch
?

I
n

short
,

t
h
e

househol
d

m
u
s
t

alloca
t
e

it
s

s
c
ar
c
e

res
o
urce
s

amon
g
it
s
var
i
ou
s

me
m
bers
,

takin
g

i
nto
acco
u
n
t

eac
h

member'
s

a
b
iliti
e
s
,

e
f
f
o
rts
,

a
n
d

d
e
sir
e
s.

Lik
e

a

h
ou
s
e
h
old
,

a

soc
i
e
t
y

f
ace
s

m
a
n
y

de
c
isions
.

A

soc
i
e
t
y

mus
t

decid
e

wha
t

job
s

wil
l

b
e

don
e

an
d

wh
o

wil
l

d
o

them
.

I
t

nee
d
s

s
o
m
e

p
eopl
e

t
o

g
ro
w

foo
d
,

o
t
he
r

peopl
e

t
o

make
c
l
o
th
i
n
g
,

an
d

st
i
l
l

o
th
e
r
s

t
o

d
e
s
i
g
n

c
omput
e
r

s
o
f
t
w
ar
e
.

Onc
e

societ
y

h
a
s

allocate
d

peopl
e

(a
s

wel
l

a
s

land
,

buildings
,

an
d

mac
h
ines
)

t
o

variou
s

jobs
,

i
t

mus
t

als
o

a
l
lo
c
at
e

th
e

outpu
t

of
go
o
d
s

a
n
d

se
r
vice
s

tha
t

the
y

pr
o
d
uc
e
.

I
t

mus
t

d
e
ci
d
e

w
h
o

w
i
l
l

e
a
t

c
a
vi
a
r

a
n
d

w
h
o

w
i
l
l

e
a
t

p
o
t
a
t
o
e
s
.

I
t

mus
t

de
c
id
e

wh
o

wil
l

d
r
i
v
e

a

Ferrar
i

an
d

wh
o

wil
l

tak
e

th
e

bus.

T
h
e

m
anagemen
t

o
f

socie
t
y'
s

r
esou
r
ce
s

i
s

i
m
po
rt
an
t

becaus
e

r
esou
r
ce
s

a
r
e

scarc
e
.

Scarcit
y

mean
s

tha
t

societ
y

ha
s

limite
d

re
s
ou
rce
s

an
d

t
he
r
e
f
o
r
e

canno
t

produc
e

al
l
th
e
good
s

and
service
s

peo
p
l
e

wis
h

t
o

ha
v
e
.

Jus
t

a
s

a

ho
u
seh
o
l
d

canno
t

giv
e

ever
y

membe
r

everythin
g

h
e

o
r

sh
e

wants
,

a

societ
y

canno
t

giv
e

ever
y

Individua
l

th
e

highes
t

standar
d

o
f

livin
g

t
o

which h
e

o
r

sh
e

migh
t

as
p
ir
e
.

Ther
e

i
s

n
o

myste
r
y

t
o

wha
t

a
n

econom
y

is
.

Whe
t
he
r

w
e

ar
e

talkin
g

abou
t

th
e

e
c
onom
y

o
f

Lo
s

An
g
eles
,

o
f

th
e

Un
it
e
d

States
,

o
r

o
f

t
h
e

who
l
e

w
orld
,

a
n

e
c
o
no
m
y

i
s

jus
t

a

grou
p

o
f

p
eo
p
le
interacti
n
g

wit
h

on
e

a
n
othe
r

a
s

the
y

g
o

a
b
o
u
t

thei
r

lives
.

Becau
se

t
h
e

be
h
avio
r

o
f

a
n

e
co
nom
y

reflect
s

th
e

b
e
ha
v
io
r

o
f

th
e

ind
i
vi
du
al
s

wh
o

ma
k
e

u
p

t
h
e

ec
o
nomy
,

w
e

star
t

ou
r

stud
y

of
eco
n
om
ic
s

wit
h

f
ou
r

pr
i
n
ciple
s

o
f

individua
l

decisio
n

maki
n
g
.



Principl
e

1
:

Peopl
e

F
a
c
e

Trade
-
o
f
fs

The

first

l
e
s
s
on

a
b
out

m
a
k
i
ng

de
c
is
io
ns

is

su
mmar
i
z
e
d

i
n

t
h
e

a
d
a
ge

"T
h
e
r
e

is

n
o

s
u
c
h

t
hin
g

a
s

a

f
r
e
e

lu
n
c
h
.
"

T
o

ge
t

on
e

t
hin
g

th
a
t

w
e

l
i
k
e
,

w
e

u
s
ua
l
l
y

h
a
v
e

t
o

g
iv
e

u
p

anothe
r

thin
g

that
w
e

like
.

Makin
g

decision
s

require
s

tradin
g

of
f

on
e

goal

ag
a
i
n
st

a
no
t
her.

C
o
ns
id
e
r

a

s
t
u
d
en
t

w
h
o

m
u
s
t

de
c
i
d
e

h
o
w

t
o

al
l
o
c
a
t
e

h
e
r

mos
t

v
a
l
u
a
bl
e

r
e
s
o
u
rc
e

h
e
r

tim
e
.

Sh
e

c
a
n

s
p
e
n
d

a
ll

o
f

h
e
r

time

s
t
u
d
y
in
g

e
c
o
n
o
m
ics;

s
h
e

c
a
n

spen
d

al
l

o
f

he
r

tim
e

studying
psychology
;

o
r

sh
e

ca
n

divid
e

he
r

t
i
m
e

betwee
n

th
e

tw
o

fields
.

Fo
r

ever
y

hou
r

sh
e

st
u
die
s

on
e

subject
,

sh
e

give
s

u
p

a
n

hou
r

sh
e

coul
d

hav
e

u
s
e
d

stu
d
yin
g

th
e

o
t
h
e
r
.

An
d

f
o
r

ev
e
r
y
hou
r

sh
e

spend
s

s
t
udying
,

sh
e

give
s

u
p

a
n

hou
r

tha
t

sh
e

coul
d

ha
v
e

spen
t

napping
,

bik
e

riding
,

watchin
g

TV,

o
r

w
o
rk
i
n
g

a
t

h
e
r

p
art
-
ti
m
e

j
o
b

for

so
m
e

ext
r
a

s
p
e
n
d
i
ng

mo
ney.

Or

con
s
i
d
er

pa
rents

de
c
i
d
i
n
g

h
o
w

to

s
p
e
nd

t
h
e
ir

fam
i
ly

i
n
co
me.

T
h
ey

c
a
n

buy

f
o
o
d
,

c
l
oth
i
ng,

or

a

fa
m
ily

va
c
a
ti
o
n
.

Or

t
h
ey

c
a
n

s
ave

so
me

of

t
h
e

fa
m
i
l
y

in
c
o
m
e

for

r
e
tire
m
ent

o
r

the

ch
i
ld
r
en's
c
o
l
l
e
g
e

e
d
u
c
a
t
i
on
.

W
he
n

t
h
e
y

c
h
o
o
s
e

to

s
p
en
d

a
n

extr
a

d
o
lla
r

o
n

on
e

o
f

thes
e

goods
,

the
y

hav
e

on
e

les
s

dolla
r

t
o

sp
e
n
d

o
n

som
e

other

g
o
od.

Whe
n

peopl
e

ar
e

groupe
d

int
o

socie
t
ies
,

the
y

fac
e

differen
t

kind
s

o
f

trade
o
ffs.

T
h
e

c
l
a
ssic

tr
a
de
-
o
ff

is

be
t
we
e
n

"g
u
n
s

a
n
d

b
u
t
t
e
r."

T
h
e

m
o
r
e

we

sp
e
n
d

o
n

nationa
l

defens
e

(guns
)

to

protec
t

ou
r

shore
s

fro
m

foreig
n

aggr
e
ssors
,

th
e

les
s

w
e

c
a
n

s
p
en
d

o
n

c
o
n
s
u
m
e
r

g
o
od
s

(b
u
t
t
e
r
)

t
o

r
a
i
s
e

o
u
r

standar
d

o
f

livin
g

a
t

ho
m
e
.

A
l
s
o

impo
rt
an
t

i
n

m
ode
r
n

s
ocie
t
y

i
s

th
e

trade
-

of
f

betwee
n

a

clea
n

envi
r
on
m
en
t

a
n
d

high

l
e
v
e
l

o
f

i
n
c
o
me.

La
w
s

t
ha
t

r
e
q
u
ire firms

to

re
du
c
e p
o
ll
u
t
ion

r
a
ise the

c
o
st

o
f

p
ro
du
c
ing goo
d
s

a
n
d s
e
rvices.

B
ec
a
u
s
e

of

t
he

h
i
g
h
er

c
o
st
s
,

these

firm
s

e
n
d

u
p

e
a
rnin
g

sm
a
ll
e
r

p
r
o
fits
,

p
a
yin
g

low
e
r

wages
,

c
ha
r
g
i
n
g

h
i
g
h
e
r

p
r
i
c
es
,

o
r

s
o
m
e

c
o
m
bin
a
t
io
n

o
f

t
hes
e

t
h
r
e
e
.

T
h
u
s
,

wh
i
l
e

poll
u
ti
o
n

regulation
s

g
i
v
e

u
s t
h
e

be
ne
f
i
t

o
f

a
cl
e
a
n
e
r

e
n
v
ir
o
n
m
e
n
t

a
n
d

t
h
e

im
p
r
o
v
e
d

h
e
a
l
t
h

t
ha
t

c
o
m
e
s

w
it
h

it
,

the
y

hav
e

th
e

cos
t

o
f

reducin
g

t
he

income
s

o
f

th
e

firms
'

owners
,

wo
r
k
ers,

an
d

c
u
sto
m
ers.

Ano
t
h
e
r

tra
d
e
-
off

soc
i
ety

fa
ce
s

is

b
e
tw
ee
n

e
f
fici
e
n
cy

a
n
d

eq
u
ity.

Efficiency

means

that

so
c
iety

is

getting

the

maximum

benefits

from

its

scar
c
e

re
so
ur
c
e
s.

E
q
uity

mea
n
s

t
h
at

tho
s
e

b
e
n
e
fits are

distr
ib
u
t
e
d

fairly

a
m
o
n
g

s
o
ciety's

m
e
m
be
r
s.

In

ot
h
e
r

w
o
r
d
s,

efficiency

refers

to

t
he

s
i
z
e

of

t
h
e

e
c
o
no
mic

p
ie,

an
d

eq
u
ity

r
e
f
ers

to

h
o
w

t
h
e

p
ie

is

di
vi
d
ed.

Oft
e
n,

w
h
e
n

g
o
v
e
r
n
m
e
nt

p
o
li
c
i
e
s are

de
s
i
gn
ed,

t
he
s
e

t
w
o

g
o
a
ls

conf
l
ict.


Consider
,

fo
r

instance
,

policie
s

aime
d

a
t

achievin
g

a

mor
e

equa
l

distributio
n

o
f

e
c
o
no
mi
c

w
e
l
l
-
b
e
i
n
g
.

S
o
me

o
f

t
h
e
se

p
o
l
i
c
i
e
s,

s
u
c
h

a
s

t
h
e

w
e
l
f
a
re

s
y
st
e
m

o
r

unem
p
loymen
t

insurance
,

try

t
o

hel
p

t
h
e

m
e
m
be
r
s

o
f

s
o
c
ie
t
y

wh
o

a
r
e

m
o
s
t

i
n

need.

Ot
h
e
rs,

su
c
h

a
s

t
h
e

i
n
d
i
v
i
d
u
al

i
n
c
o
me

t
a
x,

ask

t
h
e

fi
n
a
n
c
i
a
l
l
y

s
u
ccess
f
ul

to

contribut
e

mor
e

t
h
a
n

other
s

t
o

suppor
t

th
e

government.
Althoug
h

thes
e

policie
s

ha
v
e

t
h
e

b
e
n
e
fit

o
f

a
c
h
i
e
v
i
n
g

g
r
e
a
t
e
r

e
q
u
ity,

t
he
y

ha
v
e

a

c
o
st

i
n

t
e
rms

o
f

r
e
d
u
c
e
d

efficiency
.

Whe
n

th
e

governmen
t

redistri
b
ute
s

incom
e

fro
m

th
e

ric
h

t
o

th
e

poor
,

i
t
r
educ
e
s

th
e

rew
a
r
d

fo
r

w
o
r
kin
g

h
a
r
d
;

a
s

a

r
e
su
l
t
,

peopl
e

w
o
r
k

l
e
s
s

a
n
d

p
roduc
e

f
e
we
r

good
s

an
d

s
e
rvices
.

I
n

o
t
he
r

wo
r
d
s
,

whe
n

t
h
e

g
o
v
e
r
nme
n
t

tr
i
e
s

t
o

cu
t

th
e

economi
c

pi
e

into
mor
e

equa
l

slices
,

th
e

pi
e

get
s

smaller.


Recognizin
g

tha
t

peopl
e

fac
e

trade
-
off
s

doe
s

no
t

b
y

i
t
sel
f

tel
l

u
s

wha
t

decision
s

the
y

wil
l

o
r

shoul
d

make
.

A

studen
t

shoul
d

no
t

abando
n

th
e

stud
y

o
f

psycholog
y

jus
t

becaus
e

doin
g

so
woul
d

increa
s
e

th
e

tim
e

availabl
e

fo
r

th
e

stud
y

o
f

economics
.

Societ
y

s
h
oul
d

no
t

sto
p

p
rotectin
g

th
e

e
nvironmen
t

jus
t

becaus
e

e
n
v
iro
n
me
n
ta
l

reg
u
l
a
tion
s

red
u
c
e

ou
r

m
a
teri
a
l

stan
d
ard
o
f

l
i
vi
ng
.

T
h
e

p
o
o
r

shoul
d

no
t

b
e

ignore
d

jus
t

becaus
e

helpin
g

t
he
m

distort
s

wor
k

incentives
.

N
one
t
heless
,

acknowledgin
g

li
f
e
'
s

tra
d
e
-
o
ff
s

i
s

im
p
orta
n
t

beca
u
s
e

peopl
e

a
r
e

likel
y

t
o
mak
e

goo
d

decision
s

onl
y

i
f

the
y

understan
d

th
e

option
s

tha
t

the
y

hav
e

a
v
a
il
a
b
l
e
.



P
r
inc
i
pl
e

2
:

Th
e

C
o
s
t

o
f

So
m
ethi
n
g

Is What You Give Up to Get It

Becaus
e

peopl
e

fac
e

trade
-
offs
,

makin
g

decision
s

require
s

comparin
g

t
h
e

cos
t
s

an
d

benefit
s

o
f

alternativ
e

course
s

o
f

action
.

I
n

m
a
n
y

c
a
s
e
s
,

ho
wev
er
,

t
h
e

c
o
s
t

o
f

som
e

actio
n

i
s

no
t

as
obviou
s

a
s

i
t

migh
t

firs
t

appear.


Consider
,

fo
r

example
,

th
e

decisio
n

t
o

g
o

t
o

college
.

Th
e

benefi
t

i
s

intellectua
l

enrichmen
t

an
d

a

lifetim
e

o
f

bette
r

jo
b

opportunities
.

Bu
t

wha
t

i
s

th
e

cos
t
?

T
o

an
s
w
e
r

t
hi
s

qu
es
t
io
n
,

y
o
u
mig
h
t

b
e

t
e
m
pte
d

t
o

ad
d

u
p

t
h
e

m
o
ne
y

y
o
u

s
p
e
n
d

o
n

tuition
,

books
,

ro
o
m
,

an
d

board
.

Ye
t

thi
s

t
o
ta
l

doe
s

no
t

trul
y

r
e
presen
t

wha
t

yo
u

giv
e

u
p

t
o

spen
d

a

yea
r

i
n

college.

Th
e

firs
t

proble
m

wit
h

thi
s

a
nswe
r

i
s

tha
t

i
t

include
s

som
e

thing
s

tha
t

ar
e

no
t

r
ea
lly

c
o
s
ts

o
f

g
o
i
n
g

to

c
o
l
le
ge
.

E
v
e
n

if

y
o
u

q
u
it

sc
ho
o
l
,

y
o
u

ne
e
d

a

p
l
a
ce

t
o

s
l
e
e
p

an
d

foo
d

t
o

eat
.

Roo
m

and
boar
d

ar
e

cost
s

o
f

goin
g

t
o

colleg
e

onl
y

t
o

th
e

exten
t

tha
t

the
y

ar
e

mor
e

expensiv
e

a
t

colleg
e

tha
n

el
s
ewhere
.

Indeed
,

th
e

cos
t

o
f

roo
m

an
d

boa
r
d

a
t

you
r

schoo
l

migh
t

b
e

les
s

tha
n

the
ren
t

an
d

foo
d

expense
s

tha
t

yo
u

woul
d

pa
y

livin
g

o
n

you
r

own
.

I
n

thi
s

case
,

th
e

saving
s

o
n

r
oo
m

an
d

boar
d

ar
e

a

benefi
t

o
f

goi
n
g

t
o

coll
e
ge
.

Th
e

cos
t

o
f

go
i
n
g

to c
o
ll
ege

y
ou
r

ti
m
e
.

Wh
e
n

yo
u

spen
d

a
ye
a
r

list
e
nin
g

t
o
l
e
ct
u
r
es
,

readin
g

textbooks
,

an
d

writin
g

papers
,

yo
u

canno
t

spen
d

tha
t

tim
e

work
in
g

a
t

a

job
.

F
o
r

mos
t

students
,

th
e

wage
s

give
n

u
p

t
o

at
t
e
n
d

scho
o
l

ar
e

th
e

la
r
ges
t

sing
l
e

cos
t

o
f

thei
r

e
d
ucat
i
on.


T
h
e

oppor
t
unit
y

cos
t

o
f

a
n

i
t
e
m

i
s

wha
t

yo
u

giv
e

u
p

t
o

ge
t

t
ha
t

i
t
em
.

W
he
n

makin
g

an
y
decision
,

suc
h

a
s

whethe
r

t
o
atten
d

college
,

decisio
n

maker
s

shoul
d

b
e

awar
e

o
f

th
e

o
pportunity
cost
s

tha
t

accompan
y

eac
h

possibl
e

action
.

I
n

fact
,

t
he
y

u
s
u
a
l
l
y

a
r
e
.

C
o
ll
e
g
e

a
t
h
l
e
t
e
s

w
h
o

c
a
n

e
a
r
n

m
i
l
l
i
o
n
s

i
f

th
e
y

d
r
o
p

o
u
t

o
f

schoo
l

an
d

pla
y

professiona
l

sport
s

ar
e

wel
l

awar
e

that
thei
r

opportunit
y

cos
t

o
f

coll
e
g
e

i
s

ver
y

hig
h
.

I
t

i
s

no
t

surpr
i
sin
g

tha
t

the
y

ofte
n

decid
e

t
h
a
t

th
e

benefi
t

i
s

no
t

wor
t
h

t
h
e

c
ost.



Princ
i
pl
e

3
:

Rationa
l

Peopl
e

Thin
k

a
t

th
e

M
a
rgin


Economist
s

normall
y

assum
e

tha
t

peopl
e

ar
e

rational
.

Rat
i
ona
l

peopl
e

systemat
icall
y

an
d

pur
p
o
s
e
f
u
l
l
y

d
o

t
h
e

b
e
s
t

t
he
y

c
a
n

t
o

a
c
hi
ev
e

t
hei
r

ob
j
ec
tiv
e
s
,

gi
v
e
n

t
h
e

opportunitie
s

t
h
e
y

have.

A
s

yo
u

s
tud
y

economics
,

yo
u

wil
l

encounte
r

fir
m
s

tha
t

decid
e

ho
w

man
y

wo
rk
e
r
s

t
o

hi
r
e

an
d

ho
w

m
uc
h

o
f

t
hei
r

p
r
oduc
t

t
o

m
anu
f
act
ur
e

an
d

s
e
l
l

t
o

maximiz
e

p
r
ofits
.

Yo
u

wil
l

en
c
ounter
c
onsu
m
er
s

wh
o

bu
y

a

b
u
ndl
e

o
f

good
s

an
d

service
s

t
o

achiev
e

th
e

highes
t

possibl
e

leve
l

o
f

s
a
tisfa
c
tion
,

subjec
t

t
o

thei
r

incom
es

an
d

th
e

price
s

o
f

thos
e

good
s

an
d

services.

Rationa
l

peopl
e

kno
w

tha
t

decision
s

i
n

lif
e

a
r
e

rarel
y

blac
k

an
d

wh
i
t
e

b
u
t

usuall
y

involv
e

shade
s

o
f

g
r
ay
.

A
t

dinne
r
ti
m
e
,

t
h
e

d
e
c
isio
n

y
o
u

f
a
c
e

i
s

n
o
t

betwee
n

fastin
g

o
r

eatin
g

lik
e

a

pig
bu
t

whe
t
he
r

t
o

t
ak
e

t
ha
t

ex
t
r
a

spoon
f
u
l

o
f

mashe
d

potatoes
.

Whe
n

ex
a
m
s

rol
l

around
,

you
r

decisio
n

i
s

no
t

betwee
n

blow
i
n
g

t
h
e
m

o
f
f

o
r

stu
d
yin
g

2
4

ho
u
r
s

a

da
y

b
u
t

wh
e
t
h
e
r

t
o

sp
e
n
d

a
n

ext
r
a

ho
u
r

reviewin
g

you
r

note
s

instea
d

o
f

watchin
g

TV
.

Economist
s

us
e

th
e

ter
m

m
a
rgina
l

change
s

t
o

describ
e

smal
l

incrementa
l

adjustment
s

t
o

a
n

existin
g

pla
n

o
f

action
.

Kee
p

in

min
d

tha
t

ma
r
gi
n

mean
s

"edge,
"

s
o

margina
l

change
s

ar
e

adjustment
s

a
roun
d

th
e

edge
s

o
f

wha
t

yo
u

ar
e

doing
.

Rationa
l

peopl
e

ofte
n

mak
e

decision
s

b
y

com
p
arin
g

m
arg
i
na
l

be
n
efits

an
d

ma
r
gina
l

c
osts.

For

e
x
a
m
p
l
e,

con
s
i
d
er

a
n

a
ir
li
ne

de
c
i
d
i
n
g

ho
w

mu
c
h

to

c
ha
r
ge

pa
s
s
e
n
g
er
s

w
h
o

fl
y

standby
.

Supp
o
s
e

t
h
a
t

flyin
g

a

20
0
-
se
a
t

pl
a
n
e

a
c
r
o
ss

th
e

U
ni
t
e
d

S
t
a
t
e
s

c
o
s
ts

th
e

a
i
r
l
in
e

$
1
0
0
,
00
0
.

I
n

t
his
c
a
s
e
,

th
e

av
e
r
ag
e

c
o
s
t

o
f

eac
h

se
a
t

i
s

$10
0
,00
0
/20
0
,

whic
h

i
s

$500
.

On
e

migh
t

b
e

tempte
d

t
o

conclud
e

tha
t

th
e

airlin
e

shoul
d

neve
r

sel
l

a

t
i
ck
e
t

f
o
r

l
e
s
s

t
ha
n

$50
0
.

I
n
fact
,

how
e
v
er
,

the
a
i
r
l
i
n
e

ca
n

r
a
i
se

i
ts

pr
o
f
i
t
s

b
y

t
h
i
n
k
in
g

a
t

th
e

margin
.

Imagi
n
e

tha
t

a

plan
e

i
s

abou
t

t
o

tak
e

of
f

wit
h

te
n

empt
y

seats
,

an
d

a

standb
y

passenge
r

waitin
g

a
t

th
e

gat
e

wil
l

pa
y

$30
0

fo
r

a

seat.
Shoul
d

t
h
e

a
i
r
li
n
e

s
e
ll

th
e

t
i
c
k
et
?

O
f

c
o
u
r
se

i
t

sho
u
l
d
.

I
f

t
h
e

p
l
a
n
e

h
a
s

e
m
p
t
y

se
a
ts
,

t
h
e

c
o
s
t

o
f

ad
d
i
n
g

o
n
e

m
o
re

p
a
ss
eng
e
r

is

min
u
sc
u
l
e.

Alt
h
o
u
gh the
ave
ra
ge

c
o
st

of

flying

a

p
a
sse
n
g
e
r

is

$
5
00,

t
h
e

m
a
r
g
i
n
a
l

c
o
st

is

m
e
r
e
ly

the

c
o
st

of

the

bag

of

peanuts

and

c
an

of

soda

that

the

extra

pas
s
enger

will

co
n
s
ume.

As

long

as

the

standby

pa
ssenge
r

pay
s

mo
r
e

tha
n

th
e

ma
r
gi
n
a
l

cost,
sell
i
n
g

th
e

tic
k
e
t

i
s

profitable.

Margina
l

decisio
n

makin
g

ca
n

hel
p

explai
n

som
e

o
t
herwis
e

puzzlin
g

eco
no
m
ic

ph
e
n
o
m
e
n
a
.

H
e
re

i
s

a.

cl
a
s
sic

q
u
e
st
io
n
:

W
h
y

is

w
a
t
e
r

so

c
h
e
a
p
,

w
h
i
le

d
i
a
m
ond
s

ar
e

s
o

e
x
pensive?

Human
s

nee
d

wate
r

t
o

survive
,

whil
e

diam
o
nd
s

ar
e

unnecessary
;

bu
t

fo
r

som
e

reason
,

peopl
e

ar
e

willin
g

t
o

pa
y

muc
h

mor
e

fo
r

a

d
i
a
m
on
d

t
h
a
n

fo
r

a

cu
p

o
f

wa
t
er
.

Th
e

reaso
n

i
s

tha
t

a
pers
o
n'
s

will
in
gnes
s

t
o

p
a
y

f
o
r

a
n
y

g
oo
d

i
s

b
a
s
e
d

o
n

t
h
e

m
a
r
g
i
na
l

b
enefi
t

th
a
t

a
n

extr
a

u
ni
t

o
f

th
e

go
o
d

woul
d

y
ield
.

T
h
e

m
a
r
gina
l

benefit
,

i
n

turn
,

depend
s

o
n

ho
w

man
y

unit
s

a

per
-

so
n

al
r
ead
y

h
a
s
.

Althoug
h

wa
te
r

i
s

essential
,

th
e

margi
n
a
l

b
enefi
t

o
f

a
n

ex
t
r
a

cu
p

i
s

smal
l

bec
a
us
e

w
ate
r

i
s

plentiful
.

B
y

con
t
rast
,

n
o

on
e

n
e
ed
s

d
ia
m
ond
s

t
o

su
r
v
ive
,

bu
t

b
e
ca
u
s
e

d
i
a
m
on
d
s are

s
o

ra
r
e
,

pe
o
p
le

c
o
n
s
i
der

t
he

m
a
r
g
i
n
al

be
nefit

of

an

e
x
tra

d
i
a
mond

to

be

l
a
rg
e
.

A

rationa
l

decisio
n

make
r

take
s

a
n

actio
n

i
f

an
d
onl
y

i
f

th
e
margina
l

benefi
t

o
f

t
h
e

ac
t
i
o
n

e
x
c
ee
d
s

t
h
e

m
a
r
g
i
n
a
l

c
ost
.

T
hi
s

p
r
i
nc
i
p
l
e

ca
n

exp
l
a
in

w
h
y

a
i
r
l
i
n
e
s

a
re

willin
g

t
o

sel
l

a

ticke
t

below
averag
e

cos
t

an
d

wh
y

peopl
e

ar
e

willin
g

t
o

pa
y

m
o
re

f
o
r

d
i
a
m
on
d
s

t
h
a
n

f
o
r

w
a
t
e
r.

It

c
a
n

t
a
ke

s
o
me

t
i
m
e

to

g
e
t

u
s
e
d

t
o

t
h
e

l
o
g
ic

o
f

margi
n
a
l

thin
k
i
n
g
,

bu
t

th
e

stu
d
y

o
f

economi
c
s

wil
l

give
yo
u

am
p
l
e

o
p
p
ortu
ni
t
y

t
o

p
r
ac
t
i
c
e
.


Principle

4:

People

Respond

to

Incentives

A
n

incentiv
e

i
s

somethin
g

(s
u
c
h

a
s

th
e

prospec
t

o
f

a

punishmen
t

o
r

a

r
e
ward
)

t
ha
t

i
n
d
u
c
e
s

a
pe
r
s
o
n

to
a
ct.

B
e
c
a
u
s
e

r
a
ti
o
n
a
l

p
e
o
p
l
e

m
a
k
e

d
e
cisio
n
s

b
y
c
o
m
pa
r
i
n
g

cost
s

an
d

be
nefits
,

they
resp
o
n
d

t
o

in
c
entives
.

Yo
u

w
il
l

se
e

tha
t

in
ce
ntive
s

p
l
a
y

a

centr
al

ro
l
e

i
n

t
h
e

stud
y

o
f

ec
o
nomics
.

On
e

e
cono
m
is
t

wen
t

s
o

fa
r

a
s
t
o

sugges
t

tha
t

th
e

entir
e

fie
l
d

coul
d

b
e

simpl
y

s
u
mmarized:
"Peopl
e

respon
d

t
o

in
c
en
t
i
v
es
.

T
h
e

r
es
t

i
s

c
om
m
e
n
t
a
r
y
.
"

Incentive
s

ar
e
cru
c
ia
l

t
o

analyzin
g

ho
w

marke
t
s

work
.

Fo
r

example
,

whe
n
th
e
p
ri
c
e

o
f

a
n

a
p
p
l
e

ri
s
e
s
,

p
e
o
p
l
e

d
e
c
id
e

t
o

e
a
t

m
o
r
e

pe
a
r
s

a
n
d

f
e
w
e
r

a
p
p
l
e
s

b
ec
a
u
s
e

th
e

cos
t

o
f

buyi
n
g

an
ap
p
l
e

i
s

h
i
ghe
r
.

A
t

th
e

sam
e

time
,

app
l
e

orc
h
ard
s

d
e
ci
d
e

t
o

h
i
r
e

m
o
r
e

w
o
rk
e
rs

a
n
d

h
arves
t

m
o
r
e

a
p
p
l
e
s

be
ca
u
s
e

t
h
e

b
e
n
e
fi
t

o
f

s
e
l
lin
g

a
n

appl
e

i
s

al
s
o

higher
.

A
s

w
e

wil
l

see
,

th
e

effec
t

o
f

a
go
o
d'
s

pric
e

o
n

t
h
e

b
eh
a
v
i
or

of

b
u
yers

a
n
d

se
l
lers

in

a

ma
r
ket

i
n

th
i
s

ca
s
e
,

the

m
a
r
k
et

for

a
p
p
le
s


i
s

crucia
l

f
o
r

u
nd
ers
t
an
d
in
g

ho
w

th
e

eco
n
om
y

alloca
t
e
s

sca
r
c
e

resour
c
es.

P
u
b
lic

p
o
li
c
y
m
a
k
e
r
s

s
h
o
u
ld

n
e
v
e
r

f
o
r
g
e
t

a
b
o
u
t

i
n
ce
n
ti
v
e
s

b
e
c
a
u
s
e

m
a
n
y

p
o
li
c
ie
s

chang
e

th
e

cost
s

o
r

benefit
s

tha
t

peopl
e

fac
e

and
,

t
he
r
e
f
o
r
e
,

al
t
e
r

t
hei
r

behavior
.

A

ta
x

o
n

gasoline
,

for
instance
,

encourage
s

peopl
e

t
o

driv
e

small
e
r
,

m
o
re

f
ue
l

e
ff
i
ci
e
n
t

c
a
rs.

T
ha
t

is

o
n
e

r
e
a
s
o
n

p
e
o
p
le

d
ri
v
e

s
m
a
l
l
e
r

c
a
rs

i
n

E
u
r
o
p
e
,

wher
e

gasolin
e

taxe
s

ar
e

high
,

tha
n

i
n

th
e

Unite
d

Stat
e
s,
whe
r
e

gasolin
e

t
axe
s

a
r
e

low
.

A

gasolin
e

ta
x

als
o

encourage
s

peopl
e

t
o

t
ak
e

publi
c

tr
anspo
rt
a
t
io
n

rathe
r

tha
n

driv
e

an
d

t
o

liv
e

close
r

t
o

wher
e

the
y

work
.

I
f

th
e

ta
x

wer
e

larger
,

m
o
r
e
peopl
e

woul
d

b
e

drivin
g

hyb
r
i
d

cars
,

an
d

i
f

i
t

wer
e

larg
e

enough
,

the
y

w
o
u
l
d

s
w
itch

to

e
l
e
ctric

c
a
rs.

Wh
e
n

p
o
l
i
cy
m
ake
r
s

fa
i
l

to

c
o
ns
i
der

h
o
w

t
h
e
i
r

po
l
ic
i
e
s

affect

i
n
c
en
t
iv
e
s,

the
y

ofte
n

e
n
d

u
p

wit
h

result
s

th
e
y

di
d

no
t

int
en
d
.

F
or

exampl
e
,

conside
r

p
ub
l
i
c

po
l
ic
y

re
ga
rdin
g

a
u
t
o

s
a
f
e
ty
.

T
od
ay,
a
ll

c
a
rs

ha
v
e

s
ea
t

b
e
lts,

bu
t

t
h
is

w
a
s

no
t

tr
u
e

5
0

yea
r
s

ago
.
I
n

th
e
1960s
,

Ralp
h

Nader'
s

boo
k

Unsaf
e

a
t

An
y

Spee
d

gen
e
r
a
te
d

m
u
c
h

publi
c

concer
n

ove
r

aut
o

s
a
fety
.

Congres
s

respon
d
ed
wit
h

law
s

requirin
g

sea
t

belt
s

a
s

standar
d

equipmen
t

o
n

ne
w

cars.

H
o
w

d
o
e
s

a s
e
a
t

be
l
t

l
a
w

a
f
f
ec
t

a
u
to

s
a
f
e
ty?

Th
e

d
i
r
e
c
t

e
f
f
e
ct

i
s

o
bv
i
o
u
s
:

W
h
e
n

a

perso
n

wear
s

a

sea
t

belt
,

th
e

p
r
obabilit
y

o
f

survivin
g

a

majo
r

aut
o

acciden
t

ris
e
s.

B
u
t

t
ha
t's

n
o
t

t
h
e

en
d

o
f
the

sto
r
y

b
e
c
a
use

t
he

la
w

a
ls
o

affects

b
eh
a
v
ior

b
y

al
t
e
r
i
ng

i
n
c
e
nti
v
es.

T
h
e

re
l
e
v
a
nt

b
e
h
a
vi
or

h
e
re

is

t
h
e

s
p
e
ed

a
n
d

c
a
re

with

w
hic
h

dri
v
er
s

ope
r
at
e

thei
r

cars
.

Drivi
n
g

slowl
y

a
n
d

c
arefull
y

is

cos
t
l
y

bec
a
us
e

i
t

use
s

the

d
r
i
v
er's

tu
n
e

an
d

e
ne
r
gy.

W
h
en

d
e
c
i
d
i
ng

h
o
w

sa
fely

to

dri
v
e,

r
a
tio
n
al

p
eo
p
l
e

c
o
m
p
a
r
e

t
h
e

m
a
rg
i
n
a
l

b
e
nefit

from

sa
f
e
r

driving

to

the

ma
r
g
in
al

c
o
st.

They

d
rive

m
or
e
slowl
y

a
n
d

ca
r
efull
y

w
h
e
n

th
e

benefi
t

o
f

inc
r
eas
e
d

safet
y

i
s

high
.

I
t

i
s

n
o

surprise
,

fo
r

instance
,

tha
t

pe
o
pl
e

driv
e

mor
e

slo
w
l
y

an
d

carefull
y

whe
n

road
s

ar
e

ic
y

t
h
a
n

w
h
e
n

r
o
a
d
s

ar
e

cle
a
r.
Conside
r

ho
w

a

sea
t

bel
t

law
-
alter
s

a

drive
r
'
s

cost
-
benefi
t

calculation
.

Sea
t

bel
t
s

i
mprov
e

t
h
e

c
han
c
e
s

o
f

su
r
v
i
va
l

dur
i
n
g

a

collisio
n

reducin
g

th
e

likelihoo
d

o
f

injur
y

o
r

death
.

I
n

othe
r

word
s
,

seat

bel
t
s

re
d
uc
e

th
e

be
n
e
f
i
t
s

o
f

slo
w

a
n
d

care
f
u
l

driving
.

Peop
l
e

re
s
pon
d

t
o

sea
t

belt
s

a
s

the
y

wou
l
d

t
o

a
n

impro
v
emen
t

i
n

roa
d

co
n
di
ti
o
ns

b
y

driv
i
n
g

faste
r

an
d

les
s

carefully
.

Th
e

end

resul
t

o
f

a

sea
t

bel
t

law
,

the
r
efo
r
e
,

is

a

l
a
r
g
e
r

n
u
m
b
e
r

o
f

a
c
c
i
den
t
s
.

Th
e

d
e
cl
in
e

i
n

sa
fe

d
r
i
vi
n
g

h
a
s

a

cl
e
a
r
,

advers
e

impac
t

o
n

pedestrians
,

wh
o

ar
e

mor
e

likel
y

t
o

fin
d

themselve
s

i
n

an
acciden
t

bu
t

(
u
nlik
e

th
e

drivers
)

don'
t

hav
e

th
e

benefi
t

o
f

a
dde
d

protection.

At

first,

t
h
is

d
i
sc
u
ssion
o
f

i
n
ce
n
tiv
e
s a
n
d se
a
t

be
lts

mig
h
t

se
e
m

like

i
d
le sp
e
c
u
l
a
t
io
n
.

Y
e
t

in

a

cl
a
ssic

1975

stu
d
y,

e
c
o
nomist

S
a
m

P
e
lt
z
man

sh
o
w
ed

t
h
at

au
t
o
-
s
a
fety

l
a
ws

h
a
ve

h
a
d

ma
n
y

of
t
he
s
e

e
ffects
.

Acc
o
r
d
i
n
g

t
o

P
e
ltzm
an
's

e
v
id
en
c
e
,

the
s
e

l
a
w
s

p
r
o
d
uc
e

bot
h

fewe
r

deat
h
s

pe
r

acci
d
en
t

an
d

mo
r
e

acc
i
dents
.

H
e

c
on
c
l
ude
d

tha
t

th
e

ne
t

resul
t

i
s

littl
e

chang
e

i
n

th
e

numbe
r

of
drive
r

death
s

an
d

a
n

increas
e

i
n

th
e

numbe
r

o
f

pedestria
n

deaths.

P
e
ltzma
n
's

a
n
alysis

o
f

a
u
to saf
e
t
y

i
s

a
n

o
ffbe
a
t

e
x
a
m
pl
e

o
f

t
h
e

g
e
ne
r
a
l

p
r
incipl
e

tha
t

pe
o
p
l
e

resp
o
n
d

t
o

i
n
centives
.

Wh
e
n

an
a
lyzin
g

an
y

policy
,

w
e

m
us
t

con
si
de
r

n
o
t

o
n
ly

th
e

d
i
re
ct

e
ff
e
cts
bu
t

a
l
s
o

t
h
e

i
nd
ir
e
ct

an
d

s
o
me
tim
e
s

l
e
ss

o
b
v
i
ou
s

effect
s

tha
t

wor
k

throug
h

incen
t
ives
.

I
f

th
e

polic
y

change
s

incen
t
ives
,

i
t

wil
l

caus
e

p
eo
p
l
e

t
o

alte
r

thei
r

b
e
ha
v
ior.

Th
e

firs
t

fou
r

princip
l
e
s

dis
cu
sse
d

h
o
w

i
n
di
v
id
u
al
s

mak
e

de
cision
s
.

As

we

go

a
b
o
u
t

o
u
r

liv
e
s,

ma
n
y

o
f

o
u
r

d
e
cisio
n
s

a
ff
e
ct

n
o
t

o
n
ly

ou
rsel
v
es

but

o
t
h
e
r

p
e
o
p
l
e

as

w
e
ll.

T
h
e

n
e
xt

t
h
ree
pr
i
n
c
i
p
l
es

c
on
c
ern

h
o
w

p
e
o
p
l
e

in
t
e
r
a
ct

wi
t
h

o
n
e

a
no
t
her.



Pri
nc
i
p
l
e

5
:

T
r
a
d
e
C
a
n

Ma
k
e
E
v
e
r
y
on
e

B
e
t
t
e
r

O
f
f

Y
o
u

h
a
v
e

p
r
ob
a
b
l
y

h
e
a
r
d

o
n

t
h
e

n
ew
s

t
h
a
t

th
e

J
a
p
a
n
e
s
e

a
r
e

o
u
r

c
omp
e
t
i
t
or
s

i
n

t
he world

e
conom
y
. In

s
o
me ways, this

i
s t
r
ue

bec
a
u
se

Am
erican

a
nd J
a
p
a
nese fi
r
m
s

p
ro
d
uce

m
a
ny of

t
he

same
goods. Ford

an
d Toyo
t
a c
o
m
p
ete for

t
h
e s
a
me cust
o
m
ers

in

t
he ma
r
ket

f
o
r
a
utomob
i
les.

A
p
ple and Sony
c
ompete

for

t
h
e

same

c
ust
o
m
e
r
s

in

the mar
k
et

f
or digit
a
l m
u
sic

players.

Yet

i
t is

easy

to be
misled

when

th
i
nking

a
b
out

c
o
mpetiti
o
n

amo
n
g

count
r
i
es.

T
r
ad
e

b
e
tw
e
e
n

th
e

Un
i
te
d

S
ta
t
e
s

an
d

Jap
a
n

i
s

n
o
t

li
k
e

a

s
po
r
t
s

c
o
n
tes
t

i
n

wh
i
c
h

on
e

si
d
e

w
i
n
s

an
d

t
h
e

o
th
e
r

s
id
e

l
o
se
s
.

I
n

f
ac
t
,

t
h
e

o
pp
o
si
t
e

i
s

tr
u
e
:

Tr
a
d
e

b
etween

two

c
o
u
ntries
c
an
make

e
ach

c
ou
ntry

bet
t
er

off.

To

see

why,

c
on
sider

h
o
w

t
r
ade

affects

y
our

f
a
mily.

When

a

m
e
mber

of

your

^

famil
y

look
s
fo
r

a

j
o
b
,

h
e

o
r

s
h
e

c
ompete
s

ag
a
in
s
t

member
s

o
f

o
t
he
r
famil
i
e
s

wh
o
a
r
e looking

f
or jo
b
s.

Famil
i
es

a
l
so
c
ompete

agai
n
st

one

ano
t
her

w
h
en they

g
o _

s
h
opping
b
ecau
s
e

each

f
a
mily

w
a
nts to

b
u
y the

b
est
g
oo
d
s

at

t
h
e

lowest pric
e
s.

1

So

in

a sen
se
, each

f
a
mily

in the
economy

is

co
mpeting

with

all

other

f
a
mili
e
s.

Despite

this

c
o
mpetiti
o
n,

yo
u
r

f
amily

would

not

be

bett
e
r

off

is
olating

i
t
self

|

f
r
om

all

o
ther

fa
milies.

If

it

d
i
d,

y
our

family

wou
l
d

need

to

gr
o
w

i
ts

own

f
ood,

±
m
ake

i
t
s

o
w
n

c
l
othes,

a
n
d

bui
l
d

its

o
w
n

ho
m
e.

C
lear
l
y,

yo
u
r

f
a
m
ily

g
a
ins

m
u
c
h

|
fro
m

it
s
abilit
y

t
o
trad
e

wit
h

others
.

Trad
e

a
l
low
s

eac
h

perso
n

t
o
specializ
e

i
n
th
e

3

ac
t
i
v
i
t
i
e
s

h
e

o
r

s
h
e

d
o
e
s

b
e
st
,
w
h
e
t
h
e
r

i
t

i
s

fa
rm
i
n
g
,

s
e
w
in
g
,

o
r

h
o
m
e

b
u
i
l
d
i
ng
.

B
y

tradin
g

wit
h

others
,

peopl
e

ca
n

bu
y

a

greate
r

variet
y

o
f

good
s

an
d

service
s

a
t

lo
w
e
r

c
ost
.

Countrie
s

a
s

wel
l

a
s

familie
s

benefi
t

fro
m

th
e

abilit
y

t
o

trad
e

wit
h

on
e

another
.

Trad
e

allow
s

countrie
s

t
o

specializ
e

i
n

wha
t

the
y

d
o

bes
t

an
d

t
o

enjo
y

a

greate
r

var
i
ety

of

goods

and

services.

The

Japane
s
e,

as

well

as

t
h
e

Fr
e
n
c
h

and

the

Egy
pt
ians

and

the

B
r
azilian
s
,

are

as

much

o
ur

p
a
rt
n
ers

in

t
h
e

w
o
rld

eco
nom
y

a
s
the
y

ar
e

ou
r

com
p
etitors.



Princ
i
pl
e

6
:

M
a
rket
s

Ar
e

Usual
ly

a

Goo
d

W
ay

t
o

Organi
z
e

Economi
c

Activit
y

T
h
e

co
l
l
a
p
s
e

of

c
o
mm
u
nism

in

t
h
e

So
v
iet

U
n
i
o
n

a
n
d

E
a
ste
r
n

E
u
r
o
pe

in

t
h
e

19
80s

ma
y

b
e

th
e

mos
t

importan
t

chang
e

i
n

th
e

worl
d

durin
g

th
e

pas
t

hal
f

century
.

C
ommunis
t

coun
t
rie
s

worke
d

o
n

th
e

premis
e

tha
t

gove
r
n
m
en
t

official
s

wer
e

i
n

t
h
e

bes
t

position

to

determine

the
a
l
l
o
c
a
t
i
o
n

o
f

s
c
a
rce

r
e
s
ou
r
c
e
s

in

t
h
e

e
c
o
n
o
m
y.

Thes
e

centr
a
l

planner
s

decide
d

wha
t

good
s

an
d

service
s

wer
e

produced
,

ho
w

mu
c
h

wa
s

prod
u
ce
d
,

an
d

wh
o

p
r
od
u
ce
d

an
d

co
n
s
umed
thes
e

g
ood
s

an
d

ser
vices
.

Th
e

t
heor
y

behin
d

centra
l

plannin
g

wa
s

tha
t

onl
y

th
e

governmen
t

coul
d

o
r
g
a
n
i
z
e

e
c
o
n
om
ic

a
ct
i
vity

i
n

a

w
a
y
t
ha
t

p
r
o
m
o
t
e
d

e
c
o
n
o
m
ic

w
e
l
l
-
b
e
i
n
g

for

t
he

c
o
u
n
try
as

a

w
h
o
l
e.

Today
,

mos
t

countrie
s

tha
t

onc
e

ha
d

centrall
y

planne
d

economie
s

hav
e

abandone
d

thi
s

syste
m

an
d

ar
e

tryin
g

t
o

develo
p

marke
t

economies
.

I
n

a

marke
t

eco
no
my,

the

d
e
c
is
io
n
s

of

a c
en
t
r
a
l

p
l
a
n
n
e
r

a
re

r
e
p
l
a
ce
d

b
y

t
h
e

d
e
c
is
i
o
n
s

o
f

mi
llion
s

o
f

firm
s

an
d

households
.

Firm
s

d
ecid
e

who
m

t
o

hir
e

an
d

wha
t

t
o

make
.

Hou
s
eh
o
ld
s

d
eci
d
e

whic
h

firm
s

t
o

wor
k

fo
r

an
d

w
ha
t

t
o

buy

wit
h

t
hei
r

i
n
com
e
s
.

Thes
e

firm
s

an
d

household
s

interac
t

i
n

th
e

marketplace
,

wher
e

p
r
ice
s

an
d

self
-
i
n
t
eres
t

gui
d
e

t
hei
r

dec
isi
o
n
s.

A
t

firs
t

glance
,

th
e

succes
s

o
f

marke
t

eco
no
mie
s

i
s

puzz
l
i
n
g
.

Afte
r

all
,

i
n

a

m
a
rk
e
t

e
c
onomy
,

n
o

o
n
e

i
s

l
oo
kin
g

o
u
t

f
o
r

t
h
e

e
co
n
o
mic

w
e
ll
-
b
e
i
n
g

o
f

s
o
c
i
e
ty

a
s

a

whole
.

Fre
e

market
s

contain
man
y

buyer
s

an
d

seller
s

o
f

numerou
s

good
s

an
d

services
,

an
d

al
l

o
f

the
m

ar
e

intereste
d

primaril
y

i
n

thei
r

ow
n

well
-
being
.

Ye
t

d
e
s
p
i
te

d
e
c
e
ntr
a
li
ze
d

d
e
ci
s
i
o
n

m
a
k
i
n
g

a
nd

s
e
lf
-
i
n
t
eres
t
ed
de
c
is
io
n

ma
k
e
r
s,

ma
r
ket

ec
on
o
m
i
es

h
a
v
e

p
r
ov
e
n

r
e
ma
r
k
ab
ly

su
c
ce
s
sful

i
n

o
r
g
a
nizi
n
g

e
co
no
mi
c

activit
y

i
n

a

wa
y

tha
t

p
r
omote
s

o
v
e
r
al
l

econo
m
i
c

we
ll
-
bei
n
g
.

In

h
is

1
776

bo
o
k

An

I
n
q
u
i
r
y

i
n
to

t
h
e

N
a
tu
r
e

a
n
d

C
a
u
ses

of

the

W
e
al
t
h

of

Nat
io
n
s,

economis
t

Ada
m

Smit
h

mad
e

th
e

m
os
t

famou
s

observatio
n

i
n

al
l

o
f

economics
:

Househo
l
d
s

an
d

f
irm
s
interactin
g

i
n

market
s

ac
t

a
s

i
f

the
y

ar
e

guide
d

b
y

a
n

"invisibl
e

hand
"

tha
t

lead
s

the
m

t
o

desirabl
e

ma
r
ke
t

outcomes
.

On
e

o
f

o
u
r

g
oal
s

i
n

thi
s

boo
k

i
s

t
o

understa
n
d

ho
w

thi
s

invisibl
e

hand
work
s

it
s

magic.

A
s

yo
u

stud
y

economics
,

yo
u

wil
l

lear
n

tha
t

price
s

ar
e

th
e

instrumen
t

wit
h

w
h
i
c
h

t
h
e

i
n
vi
s
i
b
l
e

ha
n
d

d
i
r
e
c
t
s

e
c
on
o
mic

a
c
t
ivity.

In

a
n
y

m
a
rk
e
t,

b
u
y
e
rs

l
o
o
k

a
t

th
e

pric
e

whe
n

determinin
g

how
muc
h

t
o

demand
,

an
d

seller
s

loo
k

a
t

th
e

pric
e

whe
n

decidin
g

ho
w

muc
h

t
o

supply
.

A
s

a

resul
t

o
f

th
e

decision
s

tha
t

buyer
s

an
d

s
eller
s

make
,

marke
t

p
r
ice
s

reflec
t

bot
h

th
e

valu
e

o
f

a
goo
d

t
o

societ
y

an
d

th
e

c
o
st

to

s
o
c
i
e
ty

o
f

m
a
k
i
n
g

t
h
e

g
o
o
d
.

Smit
h
's

g
re
a
t

i
n
s
i
g
h
t

w
a
s

t
ha
t

p
ric
e
s

a
d
j
u
st

to

g
u
id
e

th
es
e

i
ndiv
i
d
u
a
l

bu
ye
r
s

an
d

sel
l
er
s

t
o

reac
h

o
utc
o
me
s

that
,

i
n

man
y

cas
e
s,
max
i
mi
z
e

t
h
e

wel
f
a
r
e

of

s
o
c
i
ety

as

a

w
h
o
le.

The
r
e is
a
n
im
por
t
ant

c
o
r
o
l
l
a
r
y

to the s
k
i
l
l of

the
i
n
v
i
s
i
b
l
e

ha
nd
i
n
g
u
i
d
in
g
e
c
o
no
m
ic

ac
t
ivi
t
y:

Wh
e
n the

g
o
ver
n
m
e
nt

p
r
e
v
ents

p
ric
e
s

fro
m

a
dj
u
stin
g

n
a
t
u
rall
y

t
o
s
u
p
pl
y

an
d

d
e
ma
n
d
,

i
t

impedes
th
e

invis
i
bl
e

h
a
nd'
s

ab
i
lit
y

t
o

coord
i
nat
e

t
h
e

mi
l
lio
n
s

o
f

hous
e
h
o
l
d
s

a
n
d
firms

t
ha
t

m
a
ke

u
p the eco
n
omy.

T
h
is

c
o
r
o
llary

e
xpla
i
ns

why taxes

adver
s
ely affect the allocation

of re
s
o
urces: Ta
x
e
s
dis
t
ort

pri
c
es

a
nd

t
h
us

t
h
e

de
cis
i
o
n
s

of

h
o
us
e
h
o
l
ds

an
d

fi
r
ms.

It

also

ex
pl
a
i
ns

t
h
e

e
v
en

g
rea
t
er

h
a
rm

c
a
u
s
e
d

b
y

po
l
i
c
i
e
s

t
h
a
t

di
r
e
c
t
l
y

c
o
nt
r
o
l

p
r
i
c
e
s
,

s
u
c
h

a
s

r
e
n
t

c
ont
r
o
l
.

A
n
d

i
t

e
x
p
l
a
i
n
s

the

f
a
i
l
ure

of

com
m
u
n
ism.

In

com
m
u
n
ist

c
ou
n
tri
e
s,

pri
c
es

w
e
re

not

d
e
t
e
rm
i
n
e
d

i
n

the

m
a
r
ket
p
la
c
e

b
u
t

w
e
re

dic
t
at
e
d

by

cent
r
a
l

p
l
an
n
e
rs.

T
he
s
e

p
lan
ne
r
s

lacke
d

th
e
informa
t
io
n

tha
t
g
e
ts

r
e
flecte
d

i
n

p
ric
e
s

whic
h

a
r
e

fre
e

t
o

r
e
spon
d

t
o

m
a
rke
t

f
o
r
ce
s
.

Centra
l

planner
s

faile
d

becaus
e

the
y

trie
d

.t
o

ru
n

th
e

e
c
onom
y

wi
th

one

hand

tied

beh
i
nd

their

backs

t
h
e

invi
s
ible

hand

of

the


"
FO
R

$
5

A

WEE
K

YO
U

CA
N

W
A
T
C
H

B
A
S
EB
A
L
L
W
I
TH
O
U
T

BEIN
G

NAGGE
D

TO

CU
T

TH
E

GRA
S
S
!"





































"WE
L
L

I
T

M
A
Y

HAV
E

BEE
N
6
8

CENT
S

WHE
N

Y
O
U

GO
T

I
N
LINE,

BUT

IT'S

74

CEN
T
S

N
O
W!
"

mar
k
etp
l
a
c
e.



Princ
i
pl
e

7
:

Gov
e
rnm
e
nt
s

Ca
n

S
o
metime
s

Im
p
r
o
v
e
M
a
r
k
e
t

O
u
tc
om
e
s

I
f

th
e

i
n
visibl
e

han
d

o
f

th
e

mark
e
t

i
s

s
o

g
r
e
a
t
,

w
h
y

d
o

w
e

nee
d

g
o
ver
n
me
n
t
?

On
e

p
ur
p
os
e

o
f

s
t
udy
in
g
eco
n
omic
s

i
s

t
o

refin
e

y
o
u
r

vie
w

a
b
ou
t

th
e

p
rope
r

ro
l
e

a
n
d

sco
p
e

o
f

g
ov
e
r
n
me
n
t

p
o
licy.

One

r
e
a
s
on

w
e

n
e
ed

go
v
e
rn
ment

is

t
h
at t
h
e
i
n
v
is
i
b
l
e

h
an
d
c
a
n

w
o
rk

its

ma
g
ic

o
n
l
y

i
f

th
e

g
overn
m
en
t

en
f
orce
s

th
e
rule
s

an
d

ma
i
ntain
s

t
h
e
i
nstitution
s

t
h
a
t
a
r
e

ke
y

t
o

a

marke
t

economy
.

Mos
t

import
a
nt
,

market
s

wor
k

onl
y

if
propert
y

right
s

ar
e

enforced
.

A

farme
r

won'
t

gro
w

foo
d

i
f

h
e

expect
s

hi
s

cro
p

t
o

b
e

s
t
olen
;

a

r
e
st
auran
t

won
'
t
serv
e

meal
s

unles
s

i
t

i
s

assure
d

tha
t

customer
s

w
il
l

pa
y

befor
e

the
y

leave
;

an
d

a

musi
c

compan
y

won
'
t
p
r
oduc
e

CD
s

i
f
to
o

m
a
n
y

p
o
te
n
tia
l

cust
o
m
e
r
s

a
v
oi
d

p
a
yin
g

b
y

m
a
kin
g

illega
l

copi
e
s
.

W
e
al
l

rel
y

o
n
g
o
v
e
r
n
m
e
n
t
-
provide
d

polic
e

an
d

court
s

t
o

enforc
e

ou
r

right
s

ove
r

th
e

thing
s

w
e

produce

an
d

th
e

invisible
han
d

count
s

o
n

ou
r

abilit
y

t
o

enforc
e

ou
r

ri
g
hts.

Ye
t

ther
e

i
s

another
,

mor
e

profoun
d

rea
s
o
n

w
e

nee
d

government
:

Th
e

invisi
b
l
e

h
an
d

i
s

po
w
e
rf
u
l
,

b
u
t

i
t

i
s

no
t
o
m
n
i
p
o
t
e
n
t
.

Alt
h
o
u
g
h

m
a
r
k
e
t
s

a
r
e

o
ft
e
n

a

g
o
o
d

wa
y

t
o
o
r
ganiz
e

economi
c

activit
y
,

thi
s

r
u
l
e

h
a
s

s
o
m
e
i
m
por
t
an
t

exceptions
.

T
he
r
e

a
r
e

t
w
o

b
r
oa
d

r
e
aso
n
s

fo
r

a
gove
r
n
m
en
t

t
o
in
t
e
r
ven
e

i
n
t
h
e

econom
y

and
chang
e

th
e

allocatio
n

o
f

resource
s

tha
t

peopl
e

woul
d

choos
e

o
n

thei
r

o
w
n
:

t
o
p
r
o
m
o
t
e

ef
f
i
c
ie
n
c
y

an
d

t
o
p
r
o
m
o
t
e

eq
u
i
t
y
.

T
h
a
t

is
,

m
o
s
t

p
o
licie
s

a
i
m

eithe
r

t
o

enlarg
e

th
e

economi
c

pi
e

o
r

t
o

chang
e

ho
w

th
e

pi
e

is
divided.

Cons
i
de
r

firs
t

th
e
g
o
a
l

o
f
ef
f
iciency
.

Alt
h
o
u
g
h

th
e
i
nv
i
s
i
b
l
e

h
a
n
d

u
s
u
a
l
l
y

lea
d
s

mark
et
s

t
o
allocat
e

resour
ce
s
e
ff
icien
t
ly
,

t
hi
s

i
s

no
t

al
w
ay
s

t
h
e

ca
s
e
.

Eco
n
omis
t
s

u
s
e

t
h
e

ter
m

mar
k
e
t

fai
l
ur
e

t
o

r
e
f
e
r

t
o

a

s
it
u
ati
o
n

i
n

w
h
i
c
h
t
h
e

m
a
r
k
e
t

o
n

it
s

ow
n

fail
s

t
o

produc
e

a
n

efficien
t

allocatio
n

o
f

resources
.

On
e

possibl
e

caus
e

o
f

m
a
rk
e
t

f
a
il
u
r
e
i
s

a
n

e
x
t
e
r
n
a
lity
,

wh
i
c
h

i
s

t
h
e

impac
t

o
f

on
e

p
e
rs
o
n
'
s

action
s

o
n

t
h
e

well
-
be
i
n
g

o
f

a

bysta
n
der
.

Th
e

clas
s
i
c
exam
p
l
e

o
f

a
n

extern
a
lit
y

i
s

pollut
i
on
.

A
no
t
he
r

po
ss
ibl
e

c
au
s
e

o
f

marke
t

failur
e

i
s

mar
k
e
t

failure
,

whic
h

refer
s

to
t
h
e

abilit
y

o
f a
sing
l
e

perso
n

(
o
r

smal
l

g
r
oup
)

t
o
undul
y

inf
l
uenc
e

m
arke
t

p
r
ices
.

Fo
r
e
x
a
m
ple
,

i
f

e
v
e
ry
o
n
e

i
n

t
ow
n
need
s

wate
r

bu
t

ther
e

i
s

onl
y

on
e

well
,

th
e

owne
r

o
f

t
h
e

wel
l

i
s

n
o
t

s
ubj
ec
t

t
o

t
h
e

r
ig
o
r
o
u
s

c
o
m
p
e
t
i
t
io
n

w
i
t
h
w
h
i
c
h

t
h
e

i
n
v
i
s
ibl
e

han
d

n
o
rmall
y
keep
s

self
-
inte
r
es
t

i
n

check
.

I
n

th
e

presenc
e
o
f

externalitie
s

o
r

marke
t
po
w
er
,

well
-
de
sig
n
e
d

p
ubli
c

p
olic
y

ca
n

en
ha
nc
e

ec
o
no
m
i
c

efficiency.

Th
e

invisibl
e

han
d

ma
y

als
o

fai
l

t
o

ensur
e

tha
t

economi
c

prosperit
y

i
s

distri
b
u
t
e
d

equi
t
ably
.

A

m
a
rk
e
t

econo
m
y

r
ewa
r
d
s

peopl
e

a
ccordin
g

t
o

thei
r

abilit
y

t
o

produc
e

thing
s

tha
t

other
peopl
e

ar
e

wil
l
in
g

t
o

pa
y

for
.
Th
e

world'
s

bes
t

basketbal
l

p
laye
r

earn
s

mor
e

tha
n

th
e

world'
s

bes
t

ches
s

playe
r

simpl
y

becaus
e

peopl
e

ar
e

willin
g

t
o

pa
y

mor
e

t
o
watc
h

basketbal
l

than
chess
.

Th
e

invisibl
e

han
d

doe
s

no
t

ensu
r
e

tha
t

everyon
e

ha
s

suf
f
icien
t

food
,

decen
t

clo
t
hing
,

an
d

adequa
t
e

h
e
al
t
hcare
.

M
an
y

p
u
b
li
c

p
o
lic
i
es
,

suc
h

a
s

th
e

i
n
com
e

ta
x

a
n
d

th
e

w
e
lfare
system
,

ai
m

t
o

achiev
e

a

mor
e

equitabl
e

di
s
tributio
n

o
f

economi
c

well
-
be
i
ng.

T
o

s
a
y

t
h
a
t

t
h
e

g
o
v
e
r
n
m
e
n
t

ca
n

im
p
r
ov
e

o
n

m
a
rk
e
t

o
utcome
s

a
t

tim
e
s

do
e
s

no
t
mea
n

tha
t

i
t
alwa
y
s

will
.

Publi
c

polic
y

i
s
mad
e

no
t
b
y
angel
s

bu
t
b
y a

politica
l

proces
s

tha
t

i
s
fa
r
from
perfect
.

Sometime
s

policie
s

ar
e

designe
d

simpl
y

t
o
r
ewa
r
d

t
h
e

p
o
li
t
icall
y

powe
rf
ul
.

So
m
e
t
i
m
e
s

t
he
y

a
r
e

m
ad
e

b
y

well
-
in
t
en
t
ione
d

leader
s

wh
o

ar
e

no
t

full
y

informed
.

A
s

yo
u

study
economics
,

yo
u

wil
l

becom
e

a

be
tt
e
r

j
u
d
g
e

o
f

wh
e
n

a

go
v
ernm
e
n
t

po
l
i
c
y

i
s

jus
t
i
f
i
a
bl
e

b
ecau
s
e

i
t

p
r
o
m
o
t
e
s

e
fficienc
y

o
r

equit
y

a
n
d

whe
n

i
t

i
s

not
.

Q
u
ick QUIZ

List and briefly
explain the three principles conce
r
ning people's eco
no
m
i
c

in
t
e
r
a
c
t
i
o
ns
.



HO
W

TH
E

ECONOM
Y

A
S

A

WHOL
E

WORK
S

W
e

starte
d

b
y

discussin
g

ho
w

ind
i
vi
d
u
al
s

m
ak
e

decision
s

an
d

the
n

lo
o
k
e
d

a
t

h
o
w

p
eopl
e

in
t
e
r
a
c
t

wit
h

on
e

a
noth
e
r
.

A
l
l

thes
e

de
c
i
sion
s

a
n
d

in
t
e
r
a
ction
s

t
o
g
e
t
he
r

m
a
k
e
u
p

"
t
h
e

e
c
o
n
o
m
y
.
"

T
h
e

l
as
t

t
h
r
e
e

p
r
in
c
i
p
l
e
s

c
on
c
e
r
n

t
h
e

w
o
rking
s

o
f

th
e

e
c
ono
m
y

a
s

a

w
h
ole.



Pr
i
nc
i
p
l
e 8: A
C
ountry's S
t
andard of L
i
v
i
ng Depends
o
n

I
t
s

A
b
ili
t
y

t
o

P
r
oduc
e

G
ood
s

a
n
d

Se
r
v
i
c
es


Th
e

difference
s

i
n

livin
g

standard
s

aroun
d

th
e

worl
d

ar
e

s
taggering
.

I
n

2003
,

th
e

ave
ra
g
e

Am
er
ica
n

h
a
d

a
n

i
n
c
o
m
e

o
f

a
b
ou
t

$
37
,5
00
.

I
n

t
h
e

sa
m
e

y
e
ar
,

th
e

a
v
era
g
e

Me
x
ic
a
n

ear
n
e
d

$8,9
5
0
,

an
d

t
h
e

aver
a
g
e

N
ig
eria
n

ear
n
e
d

$
900
.

No
t

su
r
prisin
g
ly
,

t
hi
s

larg
e

v
a
r
ia
t
io
n

i
n

a
v
e
r
ag
e

incom
e

i
s

reflecte
d

i
n

variou
s

measure
s

o
f

th
e

q
u
ali
t
y

o
f

li
f
e
.

Ci
t
izen
s

o
f

h
i
gh
-
in
c
o
me
countrie
s

hav
e

mor
e

T
V

sets
,

mor
e

cars
,

be
tte
r

nu
tr
i
ti
on
,

be
tte
r

healthcare
,

an
d

a

longe
r

lif
e

expectanc
y

tha
n

citizen
s

o
f

low
-
inco
m
e

countr
i
es.

Change
s

i
n

livin
g

standard
s

ove
r

tim
e

a
r
e

als
o

large
.

I
n

th
e

U
n
ite
d

States
,

income
s

hav
e

histori
c
all
y

grow
n

abou
t

2

percen
t

pe
r

y
ea
r

(
a
ft
e
r

adju
sti
n
g

f
o
r

chang
e
s

i
n

th
e

cos
t

o
f

livin
g
). A
t

t
hi
s

r
a
t
e
,

ave
r
ag
e

inco
m
e

double
s

ever
y

3
5

years
.

Ov
e
r

th
e

pas
t

century
,

ave
r
ag
e

incom
e

ha
s

rise
n

abou
t

eig
h
tfold.

Wha
t

exp
l
ain
s

thes
e

la
r
g
e

di
fference
s

i
n

l
i
v
in
g

sta
n
da
r
d
s

amo
n
g

c
o
untr
i
e
s

a
n
d

ove
r

t
u
ne
?

T
h
e

an
sw
e
r

i
s

surpris
in
gl
y

simp
l
e
.

A
lm
os
t

al
l

var
i
at
i
o
n

i
n

l
ivi
n
g

st
a
n
d
a
r
d
s

i
s

a
ttr
i
bu
t
a
b
l
e

t
o
d
iff
e
r
e
n
c
e
s

in
.
,

c
o
u
n
tr
i
e
s
'

p
r
o
d
u
cti
v
ity

th
a
t

is
,

t
h
e

a
m
oun
t

o
f

good
s

an
d

service
s

produce
d

fro
m

eac
h

hou
r

o
f

a

worke
r
'
s

time
.

I
n

nat
io
n
s

wh
e
r
e

w
o
r
ker
s

c
a
n

p
r
o
d
u
c
e

a

l
a
r
g
e
qua
n
t
i
t
y

o
f

goo
d
s

an
d

s
e
r
vi
c
e
s

pe
r

uni
t

o
f

tune
,

m
o
s
t

peopl
e

en
j
o
y

a

hig
h

standar
d

o
f

living
;

i
n

nation
s

whe
r
e

worker
s

ar
e

les
s

productive
,

mos
t

peopl
e

endur
e

a

m
or
e

meager
existence
.

Similarly
,

th
e

growt
h

rat
e

o
f

a

nation'
s

produ
c
ti
vi
t
y

de
t
e
rmi
ne
s

th
e

g
r
ow
t
h

rat
e

o
f

i
t
s

averag
e

inco
m
e
.

Th
e

fu
n
dame
n
t
a
l

r
e
l
a
t
i
o
n
s
h
i
p

be
tw
e
e
n

p
r
o
d
uct
i
v
i
t
y

a
n
d

li
v
i
n
g

s
t
a
n
d
a
r
d
s

i
s

simple
,

bu
t

it
s

implication
s

ar
e

far
-
reaching
.

I
f

productivit
y

i
s

th
e

primar
y

de
t
erminan
t

o
f

livin
g

standard
s
,
othe
r

explanation
s

mus
t

b
e
o
f

secondar
y

i
m
portance
.

Fo
r
example
,

i
t
migh
t

b
e
temptin
g

t
o
credi
t

labo
r

union
s

o
r
minimum
-
wag
e

l
a
w
s

fo
r

th
e

ris
e

i
n

livin
g

standard
s

o
f

America
n

workers
o
v
e
r

t
h
e

pas
t

c
en
t
u
r
y
.

Y
e
t

t
h
e

rea
l

her
o

o
f

America
n

wor
k
er
s

i
s

thei
r

risin
g

productivity
.

A
s

anothe
r

exam
pl
e
,

s
o
m
e

co
mm
e
n
t
a
t
o
r
s

h
a
v
e

claime
d

th
a
t

i
n
cr
e
ase
d

comp
e
t
itio
n

fro
m

Japan
an
d

othe
r

countrie
s

explaine
d

th
e

slo
w

growt
h

i
n

U.S
.

income
s

du
r
in
g

t
h
e

19
7
0
s

a
n
d

1
9
8
0
s.

Y
e
t

t
h
e

r
e
a
l

v
i
l
l
a
in

wa
s

n
o
t

c
o
m
p
e
ti
t
i
o
n

fr
o
m

a
b
roa
d

bu
t

fla
g
gin
g

p
r
o
du
ct
i
v
i
t
y

grow
t
h

i
n

t
h
e
Unite
d

St
a
t
es.

Th
e

relationshi
p

betwee
n

p
r
oductivit
y

an
d

livin
g

standard
s

als
o

ha
s

profoun
d

implication
s

fo
r

publi
c

policy
.

Whe
n

thinkin
g

abou
t

ho
w

an
y

poli
c
y

wil
l

affec
t

li
v
in
g

st
a
ndar
d
s
,

th
e

key
ques
t
io
n

i
s

ho
w

i
t

wil
l

af
f
ec
t

ou
r

abili
t
y

t
o

produc
e

good
s

an
d

servi
c
es
.

T
o

boos
t

l
i
vin
g

standard
s
,

policymake
r
s

nee
d

t
o

rais
e

p
r
o
d
u
c
tivit
y

b
y

ensurin
g

th
a
t

work
e
r
s

a
r
e

w
e
l
l

ed
u
c
a
t
e
d,
h
a
v
e

t
h
e

to
o
l
s

neede
d

t
o

produc
e

good
s

an
d

services
,

an
d

hav
e

acces
s

t
o

th
e

bes
t

availabl
e

techno
l
ogy.


Principle 9:

Inflatio
n

O
ccur
s

W
h
e
n

G
o
ve
r
n
m
en
t

Pr
i
nt
s

To
o

M
uc
h

Money


I
n

G
e
rma
n
y

i
n

Janu
a
r
y

192
1
,

a

dail
y

newspape
r

c
o
s
t

0
.
3
0

m
a
rks
.

L
e
s
s

tha
n

2

year
s

later
,

i
n

No
v
embe
r

1922
,

th
e

sam
e

new
s
pape
r

cos
t

70,000,00
0

mar
k
s
.

Al
l

othe
r

price
s

i
n

t
h
e
econom
y

ros
e

b
y

simila
r

am
o
unts
.

Thi
s

episod
e

i
s

on
e

o
f

h
is
t
o
r
y
'
s

m
o
s
t

spe
ct
a
c
ula
r

e
x
a
m
ple
s

o
f

in
f
la
t
ion
,

a
n

in
cr
eas
e

i
n

t
h
e

ove
r
al
l

le
v
e
l

o
f

price
s

i
n

th
e

economy.

Al
t
houg
h

t
h
e

Uni
t
e
d

S
t
a
t
e
s

ha
s

neve
r

expe
r
ience
d

infla
t
io
n

eve
n

clo
s
e

t
o

t
ha
t

i
n

German
y

i
n

t
h
e

1920s
,

inflatio
n

ha
s

a
t

ti
m
e
s

bee
n

a
n

economi
c

problem
.

Du
r
in
g

t
h
e

1970s
,

f
o
r
ins
t
ance
,

t
h
e

ove
r
al
l

leve
l

o
f

p
r
ice
s

m
o
r
e

tha
n

doubled
,

an
d

Pre
s
iden
t

Geral
d

For
d

calle
d

infla
t
io
n

"publi
c

enem
y

numbe
r

one.
"

B
y

contrast
,

i
n
fl
a
t
io
n

i
n

th
e

199
0
s

w
a
s

abo
u
t

3

p
e
rce
n
t
p
e
r

y
e
a
r
;

a
t

t
hi
s

r
a
t
e
,

i
t

w
o
ul
d

t
a
k
e

m
or
e

tha
n

2
0

year
s

fo
r

price
s

t
o

double
.

Becaus
e

hig
h

inflatio
n

impose
s

variou
s

c
o
sts

o
n

s
o
c
i
ety,

ke
e
p
in
g

in
f
lat
i
on

at

a l
o
w

l
e
v
e
l

is a
go
a
l

o
f

eco
n
o
m
ic
p
o
lic
y
m
a
k
er
s

aroun
d

th
e

worl
d
.

Wha
t

cause
s

inflation
?

I
n

almos
t

al
l

case
s

o
f

larg
e

o
r

persis
t
en
t

i
n
fl
a
ti
o
n
,

th
e

culpri
t

i
s

g
r
ow
t
h

i
n

t
h
e

quantit
y

o
f

m
o
ney
.

W
h
e
n

a

g
o
v
e
r
n
m
en
t

c
r
e
a
t
e
s

l
a
r
g
e

quantitie
s

o
f

th
e

natio
n
'
s
money
,

th
e

valu
e

o
f

th
e

mone
y

falls
.

I
n

Ge
r
man
y

i
n

th
e

ea
r
l
y

1920s
,

whe
n

p
r
ice
s

wer
e

o
n

ave
r
ag
e

t
r
iplin
g

ever
y

m
on
t
h
,

t
h
e

quan
t
it
y

o
f

mone
y

wa
s

als
o

triplin
g

ever
y

month
.

Althou
g
h
les
s

dramatic
,

th
e

economi
c

histor
y

o
f

th
e

Unite
d

State
s

point
s

t
o

a

simila
r

conclusion
:

Th
e

hig
h

inflatio
n

o
f

th
e

1
97
0
s

w
a
s

a
ssoci
a
t
e
d

wit
h

ra
p
i
d

g
rowt
h

i
n

th
e

q
ua
n
tit
y

o
f

mon
e
y
,

and
th
e

l
o
w

inflatio
n

o
f

th
e

1990
s

wa
s

associate
d

wit
h

slo
w

gr
o
wt
h

i
n

th
e

quantit
y

o
f

money.


P
r
in
c
ipl
e

10
:

Societ
y

F
ace
s

a

Sh
o
r
t
-
Ru
n

T
r
a
d
e
-
of
f

between

Inflation

and

Unemployment


Alt
h
o
u
g
h

a

h
i
g
h
e
r

l
e
v
e
l

o
f

p
ri
c
e
s

is
,

i
n

t
h
e

l
on
g

r
u
n
,

t
h
e

p
r
i
m
a
r
y

e
f
f
e
c
t

o
f

incre
a
sin
g

th
e

quantit
y

o
f

money
,

th
e

short
-
ru
n

s
t
or
y

i
s

mor
e

comple
x

an
d

mor
e

controv
e
rsial
.

M
o
st
economist
s

describ
e

th
e

short
-
ru
n

effec
t
s

o
f

monetar
y

injecti
on
s

a
s

f
o
llows:





Increasin
g

t
h
e

amoun
t

o
f

mone
y

i
n

th
e

econ
o
m
y

stimulate
s

t
h
e

overal
l

leve
l

o
f

spendin
g

an
d

thu
s

th
e

deman
d

fo
r

good
s

an
d

servi
c
e
s
.




H
i
g
h
e
r

d
e
m
a
n
d

m
a
y

o
v
e
r

t
i
m
e

ca
u
s
e

fir
m
s

t
o

r
a
i
s
e

t
h
e
i
r

pr
i
c
e
s
,

b
u
t

i
n

t
h
e

m
eanti
m
e
,

i
t

als
o

e
n
co
urage
s

the
m

t
o

in
c
r
eas
e

th
e

qu
a
ntit
y

o
f

go
o
d
s

an
d

servi
c
e
s
the
y

produc
e

an
d

t
o

hir
e

mor
e

worker
s

t
o

produc
e

thos
e

good
s

an
d

ser
v
ic
e
s.




Mor
e

hirin
g

mea
n
s

l
o
we
r

unemplo
y
m
ent.


Thi
s

lin
e

o
f

reasonin
g

le
a
d
s

t
o

on
e

fina
l

econom
y

wid
e

trade
-
off
:

a

short
-
ru
n

tr
ade
-
of
f

be
t
wee
n

inflatio
n

an
d

unemployment
.

Althoug
h

som
e

economist
s

stil
l

questio
n

thes
e

ideas,
m
o
s
t

a
cc
ep
t

t
ha
t

s
o
c
ie
t
y

fac
e
s

a

s
h
ort
-
r
u
n

t
ra
d
e
-
of
f

bet
w
e
e
n

i
nfla
t
i
o
n

a
n
d

u
n
e
m
p
l
o
y
ment
.

T
h
i
s

s
i
mpl
y

mea
n
s

th
a
t
,

ove
r

a

peri
o
d

o
f

a

y
ea
r

o
r

t
w
o
,

man
y

e
c
o
n
om
i
c

pol
i
c
i
e
s

p
u
s
h

i
n
fl
a
tio
n

an
d

un
e
m
p
l
o
ym
en
t

i
n

op
p
osit
e

d
i
r
e
c
t
i
on
s
.

P
o
l
i
c
y
m
a
k
e
r
s

f
a
c
e

t
h
i
s

tr
a
d
e
-
o
f
f

I

re
g
a
r
d
l
e
s
s

o
f

w
h
et
h
e
r

in
f
la
t
i
o
n

a
n
d

u
n
e
m
p
l
o
y
m
en
t

b
o
t
h

star
t

ou
t

a
t

h
i
g
h

l
e
v
e
l
s

5

(a
s

t
he
y
wer
e

i
n

th
e

earl
y

1980s)
,

a
t

lo
w

level
s

(a
s

the
y

wer
e

i
n

th
e

l
a
t
e

1990s)
,

o
r

E

someplac
e

i
n

between
.

Thi
s

short
-
ru
n

tr
a
de
-
of
f

p
lay
s

a

ke
y

rol
e

i
n

th
e

analysi
s

o
f

th
e

busine
s
s

c
y
cle

t
h
e
ir
r
egu
l
a
r

an
d

l
a
r
gel
y

un
p
r
e
d
i
cta
b
l
e

f
l
uc
t
ua
t
ion
s

i
n

e
c
onomi
c

ac
t
i
v
i
t
y

a
s

mea
s
u
r
e
d

b
y

th
e

productio
n

o
r

good
s

an
d

service
s

o
r

th
e

num
b
e
r

o
f

peopl
e

e
m
pl
o
y
ed
.

Po
l
icy
m
a
k
e
r
s

can

ex
p
l
o
i
t

th
e

sh
ort
-
r
u
n

tr
a
de
-
of
f

be
t
w
e
e
n

i
n
flat
i
o
n

a
n
d

un
e
m
ploym
e
n
t

usin
g

variou
s

polic
y

ins
t
rumen
t
s
.

B
y

changin
g

t
h
e

amoun
t

t
h
a
t

t
h
e

\

go
v
er
n
m
e
n
t

spen
d
s
,

th
e

a
m
ou
n
t

it
tax
e
s
,

an
d

th
e

amo
u
n
t

o
f

mon
e
y

i
t

pri
n
ts
,

pol
ic
y
m
a
k
e
r
s

c
a
n

i
n
f
l
ue
n
c
e

th
e

c
o
m
b
i
nat
io
n

o
f

i
n
fla
t
i
o
n

a
n
d

u
n
e
m
p
l
o
y
men
t

t
h
a
t

j

t
h
e

e
conom
y

experiences
.

Becaus
e

these

instrument
s

o
f

economi
c

polic
y

ar
e

j

po
t
en
t
iall
y

s
o

powe
rf
ul
,

ho
w

policymaker
s

shoul
d

us
e

these
'

instrument
s

t
o

contro
l

th
e

e
c
onomy
,

i
f

a
t

all
,

i
s

a

subjec
t

o
f

continuin
g

debate.


KE
Y

CO
NC
EPTS

mar
g
i
n
a
l

c
h
a
ng
es
,

i
n
ce
n
ti
v
e
,

m
ar
k
e
t

ec
o
n
o
m
y
,

p
r
o
per
ty

r
i
g
hts
,

mar
k
et

fail
ur
e,

ex
t
e
r
n
a
l
it
y
,

scarcity
,

e
c
ono
m
ic
s
,

eff
i
c
i
e
n
c
y
,

e
quit
y
,

opportunity

cost,

ratio
n
a
l

pe
op
l
e,
m
a
rke
t

po
w
e
r,

productiv
it
y
,

inflation,

b
us
i
n
e
s
s

c
y
c
l
e
,

Q
u
ic
k

Qui
z

Lis
t

a
n
d

b
rief
l
y

e
x
pla
i
n

th
e

t
h
re
e

princip
l
e
s

th
a
t

des
c
rib
e

ho
w

th
e

econom
y

a
s

a

whol
e

works.



I.I
.

DEFI
N
ITIO
N

AN
D

QUESTIO
N
S


Al
l

econo
m
i
c

question
s

a
n
d

proble
m
s

aris
e

becaus
e

h
u
m
a
n

want
s

e
xcee
d

t
h
e

r
e
s
o
u
rc
e
s

av
a
ilab
l
e

t
o

sat
i
sf
y

t
he
m.

W
e

wan
t

g
o
o
d

he
a
l
t
h

an
d

lon
g

lives
.

W
e

w
a
n
t

s
p
a
c
i
ou
s a
n
d
co
m
f
o
r
ta
b
l
e
h
o
m
e
s
.

W
e

w
an
t

a
h
u
g
e

r
a
n
g
e

o
f

s
po
r
t
s

a
n
d

r
e
c
r
e
a
t
i
on
al

equi
p
m
en
t

fr
o
m

runnin
g

shoe
s

t
o

je
t

skis
.

W
e

wan
t

th
e

ti
m
e

t
o

enj
o
y

o
u
r

favorit
e

sp
o
r
t
s
,

v
i
d
eo

g
a
m
e
s,
novel
s,

m
u
sic
,

a
n
d

m
ovie
s;

to

tr
a
v
el

t
o

e
xot
ic

p
l
a
c
e
s
;

a
n
d

j
u
s
t

t
o

han
g

ou
t

wit
h

frie
n
ds.




S

c

a

r

ci
t

y


O
u
r

i
n
abi
l
i
t
y

t
o

sat
i
sf
y

a
l
l

o
u
r

wa
n
t
s

i
s

ca
l
le
d

sc
a
r
c
i
t
y
.

Th
e

ab
i
li
t
y

o
f

e
a
c
h

o
f

u
s

t
o

satisf
y

ou
r

w
a
n
t
s

i
s

li
m
ite
d

b
y

t
h
e

t
i
m
e

w
e

have
,

th
e

in
c
o
m
e
s

w
e

earn
,

an
d

t
h
e

p
r
ice
s

w
e
pa
y

fo
r

th
e

thing
s

w
e

buy
.

Thes
e

l
i
m
i
t
s

m
ea
n

tha
t

everyon
e

ha
s

unsat
i
s
f
ie
d

w
a
n
t
s
.

T
h
e

ab
i
li
t
y

o
f

al
l

o
f

u
s

a
s

a

soci
et
y

t
o

s
a
t
isf
y

o
u
r

w
a
nt
s

i
s

li
m
ite
d

b
y

t
h
e

pr
od
u
c
t
i
v
e
r
e
so
u
r
c
e
s

t
h
a
t

e
x
i
s
t.

T
h
e
s
e

r
e
so
u
r
c
e
s

i
n
c
l
u
d
e

t
h
e

g
i
f
t
s
o
f

n
a
t
u
r
e,

ou
r

l
a
bo
r

an
d

i
ng
en
uit
y
,

an
d

t
oo
l
s

an
d

e
q
uip
m
en
t

t
h
a
t

w
e

h
a
v
e

m
ade.

Everyone,

poor

and

ri
c
h

al
i
k
e,

faces

sca
r
c
ity.

A

chi
l
d

wants

a

$1
.
00

can

of

soda

an
d

t
w
o

5
0

pa
c
k
s

o
f

g
u
m

b
u
t

h
a
s

o
nl
y

$
1
.
0
0

i
n

h
i
s

po
c
ke
t
.

H
e

face
s

sc
a
rci
t
y
.

A

m
illionaire
want
s

t
o

spen
d

th
e

weeke
n
d

pla
y
in
g

go
l
f

an
d

spen
d

t
h
e

sa
m
e

week
e
n
d

at

t
h
e

o
f
fice

a
t
te
n
d
i
n
g a

bu
s
i
n
ess

st
r
at
e
g
y

m
eeti
n
g
.

S
h
e

fa
c
es

s
c
arcity.

The

U.S.

g
o
ve
r
n
m
en
t

w
a
n
t
s

to
i
n
c
r
e
a
s
e
de
fe
n
s
e

s
p
e
n
d
i
n
g
a
n
d

c
u
t

ta
xe
s.
I
t

f
a
ce
s

s
ca
r
c
i
t
y
.

A
n

e
ntir
e

societ
y

w
a
nt
s

i
m
prove
d

healt
h

care
,

a
n

Interne
t

c
onnectio
n

i
n

eve
r
y

cla
s
s
ro
o
m
,

a
n

a
m
b
itio
u
s

space
expl
o
r
atio
n

p
r
o
g
r
a
m
,

cl
e
a
n

lak
e
s

an
d

rivers
,

an
d

s
o

on
.

Societ
y

face
s

scarcity.


No
t

onl
y

d
o

1

wan
t

a

cracker

w
e

al
l

wan
t

a
cracker
!

©

T
h
e

Ne
w

Y
ork
er

Coll
e
ctio
n

198
5


^
\
,

A/f
n
^
l
n
I
l

f
,^
m

/*ar
f

n
n
V
ian
V
rnr
n

A
ll

R
ifr
h
h
q
Rp
S
R
rvpd.

Fac
ed

w
i
t
h

sc
arc
i
ty
,

w
e

m
u
s
t

m
a
k
e

cho
ic
e
s
.

W
e

m
u
s
t

choos
e

a
m
on
g

t
h
e

ava
il
a
b
le

a
l
te
r
n
at
ives
.

The
c
h
i
ld

m
us
t

c
h
oo
se

t
h
e

s
o
d
a

o
r

t
h
e

gu
m
.

Th
e

m
il
l
i
o
n
ai
r
e

m
us
t

choos
e

t
h
e

gol
f

g
a
me

o
r

th
e

m
eetin
g
.
Th
e
gove
r
n
m
en
t

m
us
t
c
hoo
s
e
de
f
e
n
s
e
o
r
t
a
x
cu
t
s
.

An
d

soc
i
e
t
y

m
u
s
t

cho
o
s
e

a
m
o
n
g

healt
h

c
a
re,
c
o
m
p
ut
e
r
s
,

spa
c
e

expl
o
r
ation
,

th
e

env
i
ron
m
en
t
,

an
d

s
o

on
.

Eve
n

p
a
rro
t
s

fac
e

sc
a
r
ci
t
y
!


Economi
c
s

Defi
n
e
d


Economic
s

i
s

th
e

socia
l

s
c
ienc
e

tha
t

studie
s

th
e

choice
s

tha
t

individuals
,

busi
n
e
ss
e
s
,
g
o
v
e
r
n
m
e
n
t
s
,
an
d

enti
re

s
oc
i
e
t
ie
s

m
a
k
e

a
s

t
he
y

c
o
p
e

wi
th

sca
r
cit
y

an
d

th
e

in
c
e
n
tives

that

inf
l
uence

and

re
c
on
c
ile
tho
s
e

c
h
oices.

T
h
e

s
ubjec
t

i
s

ext
r
e
m
e
l
y

broa
d

an
d

tou
c
he
s

al
l

a
s
pec
t
s

o
f

o
u
r

live
s
.

T
o

ge
t

be
yon
d
t
h
i
s
d
e
finitio
n
o
f
econ
o
m
i
cs
,

y
o
u

n
ee
d

t
o

understan
d

th
e

kin
d
s
o
f
que
s
tio
n
s
tha
t

econ
o
m
i
st
s

tr
y

t
o

a
n
swe
r
an
d

th
e

way
the
y

thin
k

an
d

g
o

abou
t

seekin
g

t
h
o
se
a
n
swers.

W
e

be
g
in

wit
h

s
o
m
e

ke
y

econ
o
m
i
c

q
uesti
on
s.

A
l
t
h
ou
g
h

t
h
e

sco
p
e

o
f

econ
o
m
i
c
s

i
s

b
r
oa
d

an
d

t
h
e
rang
e
o
f
q
u
estion
s

tha
t

econ
o
m
i
st
s
addres
s

i
s

e
quall
y

b
r
oad
,

tw
o

bi
g

question
s

p
r
ovid
e a

useful
s
u
m
m
ar
y

o
f

th
e

scop
e

o
f

econ
o
m
i
cs:



H
o
w

d
o

c
h
o
i
c
e
s

en
d

u
p

d
e
t
e
r
m
ini
n
g

w
h
at
,

h
o
w
,

an
d

f
o
r

w
h
o
m

g
oo
d
s

an
d

service
s

ge
t

produce
d
?



Whe
n

d
o

ch
o
ice
s

m
a
d
e

i
n

t
h
e

p
u
rsui
t

o
f

s
e
l
f
-
i
n
t
e
r
e
s
t

a
l
s
o

p
r
o
m
o
t
e

t
h
e

s
o
c
i
a
l

i
n
te
r
e
st
"
?




Wha
t
,

How
,

an
d

Fo
r

Whom?


Good
s

an
d

service
s

ar
e

th
e

object
s

a
n
d

action
s

th
a
t

peopl
e

val
u
e

an
d

produ
c
e

t
o

satisf
y

h
u
m
a
n
wants
.

Good
s

ar
e

object
s

t
ha
t

satisf
y

wants
.

Ru
n
ni
n
g

shoe
s

a
n
d

ketchu
p

a
r
e

ex
a
m
p
l
e
s
.

S
e
r
vic
e
s
a
r
e
ac
t
ion
s

tha
t

s
at
isf
y

w
an
t
s
.

H
a
i
r
cu
t
s

an
d

r
oc
k

concert
s

ar
e

ex
a
m
pl
es
.

W
e

produc
e

a

dazzlin
g

arra
y

of

good
s

an
d

service
s

tha
t

r
a
n
g
e

f
r
o
m

n
ec
e
s
si
t
i
e
s

s
u
c
h

a
s

foo
d
,

h
o
u
s
e
s
,

a
n
d

h
ea
l
t
h

ca
r
e

t
o

l
e
i
s
u
r
e

i
te
m
s

suc
h

a
s

D
V
D

pl
a
y
e
r
s

an
d

r
ol
le
r

c
o
a
s
te
r

ri
d
es
.


What?

Wha
t

deter
m
ine
s

th
e

quantitie
s

o
f

cor
n

w
e

g
r
ow
,

ho
m
e
s

w
e

build
,

an
d

DV
D

pla
y
e
r
s

w
e

p
r
o
d
u
c
e
?

S
i
x
t
y

y
ea
r
s

a
g
o
,

2
5

p
e
r
c
e
n
t

o
f

A
m
e
r
ica
n
s
worke
d

o
n

a

far
m
.

Th
at

nu
m
b
e
r

h
a
s
shrun
k

t
o

les
s

tha
n

3

percen
t

toda
y
.

Ove
r

th
e

sa
m
e

period
,

th
e

n
u
m
b
e
r

o
f

p
eop
l
e
wh
o

p
r
o
duc
e

go
o
ds

i
n

m
i
n
i
ng
,

c
o
ns
t
r
uc
t
ion
,

a
n
d m
anu
f
a
ct
u
r
i
ng


ha
s

als
o

shr
u
nk
,

fr
o
m

3
0
pe
r
cen
t

t
o

2
0

pe
r
cent
.

Th
e

dec
r
ea
s
e

i
n

far
m
in
g

an
d

t
h
e

p
r
o
d
uctio
n

o
f
g
o
o
d
s

i
s

m
a
tche
d

b
y

a
n

inc
r
eas
e

i
n

t
h
e

p
roductio
n

o
f

servic
e
s
.

H
o
w

wi
l
l

t
h
e
s
e

q
u
ant
i
ti
e
s

c
h
ang
e

i
n

the
futu
r
e

a
s

ongoin
g

change
s

i
n

technolog
y

m
ak
e

a
n

ev
e
r
-
wid
e
r

a
rr
a
y

o
f

goo
d
s

an
d

s
e
rvic
e
s

availabl
e

t
o

u
s
?


H
o
w
?

Ho
w

a
r
e

good
s

an
d

s
e
r
vice
s

p
r
oduce
d
?

I
n

a

vine
y
a
r
d

i
n

F
r
ance
,

baske
t
-
c
arr
y
in
g

work
e
r
s

pic
k

th
e

annua
l

grap
e

cro
p

b
y

hand
.

I
n

a

vin
ey
ar
d

i
n

California
,

a

hug
e

m
ac
h
i
n
e
a
n
d

a

fe
w

w
o
r
k
er
s

d
o

t
h
e

s
a
m
e

j
o
b

t
h
a
t

a

h
u
nd
r
e
d

g
r
a
p
e

p
i
c
k
er
s

i
n

Franc
e

do
.

Loo
k

aroun
d

y
o
u

an
d

y
o
u

wil
l

se
e

m
a
n
y

ex
a
m
pl
e
s

o
f

thi
s

phen
o
m
e
no
n

t
h
e
sam
e
jo
b

being
do
n
e

i
n

differen
t

w
a
ys
.

I
n

s
o
me

s
u
per
m
ar
k
et
s,

checkou
t

c
le
r
k
s

ke
y in
pri
c
es
.

I
n
o
t
h
ers
,

t
he
y
u
se

a
lase
r

s
c
a
nn
er
.
O
n
e

far
m
e
r

k
e
e
p
s

t
r
a
c
k
o
f

hi
s

li
ve
s
t
o
c
k

fe
e
d
i
n
g

s
c
h
e
d
u
le
s

a
n
d
i
n
v
e
n
to
r
ie
s

b
y

u
s
i
n
g

p
a
p
e
r
-
a
n
d
-
p
e
n
c
i
l

rec
o
rds
,

whil
e

anothe
r

u
s
e
s

a

perso
n
a
l

c
o
m
p
uter
.

G
M

hire
s

wor
k
er
s

t
o

wel
d

aut
o

bodie
s

i
n

s
o
m
e

o
f

it
s

plant
s

an
d

u
s
e
s

robot
s

t
o

d
o
th
e

jo
b

i
n

others.

Why

do

w
e

us
e

mac
h
ines

i
n

some

cases

and

people

i
n

others?

D
o

mech
a
niz
a
tion

and

t
e
chno
lo
gical

change

destroy

more

jobs

th
a
n

they

c
r
eate?

D
o

they

ma
k
e

us

be
t
ter
off or worse

of
f
?



Fo
r

who
m

ar
e

good
s

an
d

s
e
rvice
s

produced?

T
h
e

a
n
s
w
e
r

to

t
h
i
s

que
sti
o
n

depend
s
o
n

th
e

i
n
c
o
me
s

tha
t

peo
p
l
e
ear
n

an
d

th
e

price
s
t
h
e
y

pa
y

fo
r

th
e

goo
d
s
an
d

service
s

t
h
e
y

b
u
y
.

A
t

g
i
ve
n

prices
,

a

perso
n

wh
o

ha
s

a

high
in
c
o
me

i
s

a
bl
e

t
o

b
u
y

m
or
e
good
s

a
n
d

s
ervice
s

th
a
n

a

per
s
o
n

wh
o

ha
s

a

lo
w

inco
m
e
.
Doctor
s
ear
n

m
u
c
h

highe
r

inc
o
m
e
s

tha
n

d
o

n
u
r
s
e
s

an
d

medica
l

assistants
.

S
o

docto
r
s
ge
t

m
o
re

o
f

t
h
e

good
s

an
d

s
ervice
s

p
r
oduce
d

tha
n

n
u
r
s
e
s

an
d m
edica
l

assistant
s

get.

Yo
u

p
roba
b
l
y

kno
w

abo
u
t

man
y

othe
r

p
e
rsisten
t
d
iffere
n
ce
s

i
n

inc
o
mes
.
Men
,

o
n

t
h
e

a
v
era
g
e
,

ear
n

m
o
r
e

t
h
a
n

w
o
m
e
n
.

Wh
ites
,

o
n

t
h
e

average
,

ear
n

m
o
r
e

tha
n

m
inorit
i
e
s.

Colleg
e

gra
d
uates
,

o
n

th
e

average
,

ear
n

m
or
e

t
h
a
n

hig
h

schoo
l

gradu
a
t
e
s
.

A
m
e
ri
c
a
n
s
,

o
n

t
h
e

ave
r
age
,
e
a
r
n

m
or
e
t
ha
n

E
u
r
o
p
e
a
n
s
,

w
h
o

i
n

t
u
r
n

ea
r
n

m
or
e
,
o
n

th
e

aver
a
ge
,

than
Asian
s

a
n
d

A
f
rican
s
.

B
u
t

th
e
r
e

ar
e

so
m
e

s
i
g
n
ific
a
n
t

exc
e
pt
i
o
ns
.

Th
e

peopl
e

o
f

Japa
n

an
d

Hon
g

K
o
n
g

no
w

ear
n

a
n

a
v
era
g
e

i
n
c
o
m
e

s
i
m
il
a
r

t
o

tha
t

o
f

A
m
e
rica
n
s
.

An
d

t
her
e

i
s

a

lot
o
f

inc
o
m
e

inequalit
y

throughou
t

th
e

world.


Wha
t

deter
m
ine
s

th
e

in
c
ome
s

w
e

earn
?

Wh
y

d
o

doctor
s

ear
n

large
r

in
c
o
m
e
s

th
a
n

n
ur
s
es
?

W
h
y

d
o

wh
i
t
e

m
al
e

coll
e
g
e

gradu
a
te
s

ear
n

m
or
e

tha
n

mi
n
orit
y

f
e
m
a
l
e

hig
h
scho
o
l

grad
ua
tes
?

Wh
y

d
o

America
n
s

ear
n

m
o
re
,

o
n

t
h
e

avera
g
e
,

tha
n

Afr
i
ca
n
s
?

Econo
m
ic
s

expla
i
n
s

ho
w

th
e

choice
s

tha
t

ind
i
v
i
du
a
ls
,

bus
i
n
esses
,

an
d

government
s

m
ak
e

a
n
d

th
e

inte
r
action
s

o
f

thos
e

choice
s

en
d

u
p

determinin
g
w
h
at
,

how
,
an
d
for
wh
o
m

goo
d
s

an
d

ser
v
ice
s

g
e
t

p
r
od
u
ce
d
.

I
n

a
n
swerin
g

thes
e

q
u
estio
n
s
,

w
e

h
a
v
e

a

d
e
e
p
e
r

a
g
e
nd
a

i
n

m
i
nd
.

We
'
r
e

no
t

in
t
e
r
es
t
in
g
i
n

j
us
t

k
n
o
win
g

ho
w

ma
n
y

DVD

p
la
y
ers

g
et
produced,

how

they

get

p
r
oduced,

and

who

gets

to

e
n
joy

t
h
e
m
.

W
e

ultimately

want

to

know

the

answer

to

the

second

b
i
g

econo
m
ic

q
u
es
tio
n

tha
t

we
'
l
l

no
w

explore.




Whe
n

I
s

th
e

Pursui
t

o
f

S
e
lf
-
Intere
s
t

i
n

t
h
e

So
c
i
a
l

I
n
ter
e
st?

E
v
er
y

d
a
y
,

y
o
u

a
n
d

2
9
6

millio
n

o
t
h
e
r

A
m
erica
n
s
,

alo
n
g

wit
h

6
.
1

b
illio
n

p
eo
p
l
e

in

t
h
e

rest

o
f

t
h
e

w
o
r
l
d
,

m
a
k
e

e
c
ono
m
i
c

c
ho
ices

t
hat

result

in

"what,"

"
h
ow,"

and

"
f
or
whom
"

good
s

an
d
se
r
v
ice
s

ge
t
p
r
oduced.

Ar
e

th
e

good
s

an
d

servic
e
s

produc
e
d
,

a
n
d

th
e

qu
a
n
ti
ti
e
s

i
n

w
hi
c
h

th
e
y

ar
e

produced
,

t
h
e

righ
t

one
s?

D
o

th
e

scarc
e

resource
s

ge
t

use
d

i
n

t
h
e

b
e
s
t

poss
i
bl
e

wa
y
?

D
o

t
h
e
g
oo
d
s
a
n
d

s
e
rvice
s

t
ha
t

w
e

p
r
o
duc
e

g
o

t
o

t
h
e

pe
o
pl
e

wh
o
b
e
ne
f
i
t

m
o
s
t

fr
o
m

t
h
e
m?


Different

nat
i
ons

use

different

econo
m
ic

s
y
ste
m
s

to

dete
r
m
ine

how

to

effectively

use

their

li
m
i
t
ed

resources

to

answer

the

thr
e
e

basic

econo
m
ic

questions.

ThePr
i
mary
goal

of

an

econo
m
ic

s
y
stem

is

to

prov
i
de

people

with

a

m
ini
m
u
m

standard

of

l
i
ving,

or

quality

of

life.

The

m
o
st

popular

and

si
g
nificant

t
y
pes

of

E
c
ono
m
ic

S
y
stems

are
listed

and

ex
p
lained

below.

1
.

Traditional

Econo
m
y

2
.

Market

Ec
o
nomy

(free

e
nterpri
s
e)

3
.

Command

Economy

(planned)

4
.

Mixed

Econo
m
y



Traditional

Econo
m
y
-

Economies

base

on

preserved

values

and

custo
m
s.

Us
u
a
lly

rural,

less
-
developed

area
s
:

Mesi,

Inuit,

A
m
ish.

Customs

govern

the

econ
o
mic
decisions

that

are

m
ade.

Far
m
ing,

hu
n
ti
n
g

and

gather
i
ng

all

j
o
bs

are

done

the

same

way

as

t
h
e

generation

before.

Econo
m
ic

acti
v
ities

are

centered

around

t
h
e

family

or
ethnic

unit.

Men

and

w
o
men

are

given

different

econo
m
ic

roles

and

tasks.

Advantages:

p
e
ople

have

specific

roles;

security

in

the

way

things

a
r
e

done.

Disadvantages:
Technology

is

not

used;

lit
t
le

innovation

or

improvements


Market

Ec
o
nomy

(Free

Enterpr
i
se)
-

Also

called

a

Free

Market

Economy

or

Free

Enterpr
i
se

Economy.

Businesses

and

consu
m
ers

decide

what

they

will

produce

and
purchase

and

in

what

quan
t
ities.

Dec
i
sions

are

m
ade

according

to

l
a
w

of

supp
l
y

&

de
m
and.Supp
l
y

and

demand

of

goods

and

services

deter
m
ine

w
h
at

is

produced

and

the
price

that

will

be

charged.

Advantage:

C
o
mpetition

spurs

innovation,

s
o
cial

mobility,

many

choices.

Disadvantage:

Rift

between

weal
th
y

and

poor,

needs

may

not

be
met.Note:

a

true

market

economy

does

not

exist.

Closest

example

S
ingapore

or

Hong

Kong


Co
mm
a
nd

Econo
m
y
-
The

govern
m
ent

(o
r

central

authori
t
y
)

determines

what,

how,

a
nd

for

w
hom

goods

and

services

a
r
e

produced.

Strong

Com
m
and

(Com
m
un
i
s
m
)



central

government

m
akes

all

decisions

(Venezuela,

Cuba).

Moder
a
te

C
o
mmand

(Socialis
m
)



private

enterprise

exists

but

the

sta
t
e

owns

m
ajor

r
e
sources

(Fra
n
ce

and
Sweden).

Advantages:

Guarantees

equal

standard

of

l
i
ving

f
o
r

everyone,

Less

crime

and

poverty,

Needs

are

provided

for

t
h
rough

the

government.

Disadvantages:

Minimal
choices,

Fewer

choices

of

ite
m
s

,

No

incentive

to

produce

bett
e
r

product

or

engage

in

entrepreneurship,

Also

known

as

a

Planned

or

M
anaged

Eco
n
omy

Mixed

Econo
m
y
-
C
o
m
bination

of

a

m
a
rk
et

and

a

command

econo
m
y
.

Government

ta
k
es

care

of

peopl
e

s

needs.

Marke
t
place

takes

care

of

people

s

wa
n
ts.

M
o
st

nations
have

a

mixed

economy:

United

States,

England,

Aust
r
alia.

Advantage:

Balance

of

needs

and

w
ants

met

by

government

and

in

marketplace.

Disadvantage:

Citizens

have

to
pay

taxes


Self
-
I
n
t
e
r
es
t

a
n
d

t
h
e

S
ocia
l

I
nt
e
r
est


Choices

that

are

the

best

fo
r

the

individual

who

makes

th
e
m

are

c
hoices

m
ade
i
n

th
e

pu
r
s
u
it

o
f

se
l
f
-
i
n
t
erest
.

Choice
s

th
a
t

a
r
e

th
e

be
s
t

fo
r

s
o
c
i
e
t
y

a
s

a
w
hol
e

ar
e

s
a
i
d

t
o
b
e

in
th
e

socia
l

in
t
e
r
est
.

Th
e

s
o
cia
l

interes
t

ha
s

tw
o

dimensions
:

eff
i
c
i
enc
y

an
d

equity
.

W
e
'l
l

explor
e

the
se

c
o
ncept
s

i
n

la
ter

chapters
.

Fo
r

now
,

thi
n
k

o
f

efficie
n
c
y

a
s

b
e
in
g
ac
h
ie
v
e
d

b
y

bakin
g

t
h
e

bi
g
ges
t

possi
b
l
e

pie
.

An
d

t
h
i
n
k

o
f

eq
u
it
y

a
s

bein
g

a
c
h
ie
ve
d

b
y s
h
ari
n
g

t
h
e

p
ie

in

t
h
e

f
airest

po
ssi
b
le

w
a
y
.

Yo
u

kno
w

tha
t
you
r

o
wn

choice
s

ar
e
th
e
bes
t

one
s

fo
r

you

o
r

a
t

leas
t

y
o
u

t
h
in
k

th
e
y
'r
e

th
e

be
s
t

a
t

th
e

ti
m
e

tha
t

yo
u

m
a
k
e

the
m
.

Yo
u

us
e

y
ou
r

ti
m
e

a
n
d

o
the
r

re
s
o
u
r
ces
i
n

t
h
e

w
a
y

t
h
a
t

ma
k
e
s

m
o
s
t

sens
e

t
o

y
ou
.

B
u
t

y
o
u

d
o
n
'
t

thin
k

m
u
c
h

abou
t

ho
w

you
r

choice
s

a
ffec
t

othe
r

p
e
ople
.

Yo
u

orde
r

a

ho
m
e

d
e
l
i
v
er
y

pizz
a

bec
a
us
e

y
ou're
h
u
ng
ry

a
n
d

wa
n
t

t
o

eat
.

Y
o
u

d
on
't

o
r
d
e
r

i
t

t
h
in
k
i
n
g

t
h
a
t

t
h
e

d
e
l
ivery

person

or

the

cook

needs

an

inc
o
me.

You

make

choices

that

are

i
n

you
r

s
elf
-
interest

choice
s

that
y
o
u t
hi
n
k

ar
e

bes
t

f
o
r

y
o
u.



Ada
m

Smit
h

an
d

th
e

Invisib
l
e

Hand

It may be only a .c
o
i
n
c
i
d
e
n
ce

t
ha
t

Adam
.

Smith
'
s

great book

The Wealth of Nations
was published in

1776, the
ex
a
c
t

ye
a
r
Am
e
rica
n

rev
o
l
u
tion
ar
i
e
s

sig
n
e
d

th
e

D
ecl
a
r
a
ti
o
n

o
f

I
nd
e
p
e
n
d
en
c
e
.

Bu
t

th
e

t
wo

docu
m
ent
s
shar
e

a

po
int

o
f

v
i
e
w

t
ha
t

w
a
s
prevalen
t

a
t

th
e

tim
e
:

In
d
i
vidual
s

ar
e

u
s
u
a
l
l
y

b
es
t

l
ef
t

t
o

t
h
e
i
r

o
w
n

d
e
vi
c
es
,

wi
t
ho
u
t

t
h
e

he
a
v
y

h
a
n
d

o
f
go
v
e
r
n
m
e
n
t

gu
i
d
i
ng

t
h
e
ir
a
c
t
i
on
s
.
Thi
s

po
li
t
i
c
al

ph
i
lo
s
ophy

prov
i
des

t
h
e

in
t
e
lle
ct
ual

"basis for the market economy and for free

society
mor
e

generally*

Wh
y

d
o

decentralize
d

ma
r
k
e
t

econ
o
mi
e
s

wor
k

s
o
:

we
l
l
?

I
s

i
t

b
e
c
a
u
s
e
,

p
eo
p
l
e

c
a
n

b
e

c
ou
n
t
e
d

o
n

t
o

t
re
a
t

o
ne

a
n
o
t
h
er

w
it
h

l
o
v
e

and
ki
nd
n
e
ss
?

N
o
t

a
t

a
ll
.

H
ere

i
s

Ad
a
m

S
mith
'
s

d
e
sc
r
i
p
tio
n

o
f

ho
w

p
eo
p
l
e

i
n
t
e
r
ac
t

i
n

a

ma
r
k
e
t

e
c
onom
y
:



M
a
n

h
a
s

a
l
m
o
st

co
n
s
t
a
n
t

oc
c
a
s
i
on

f
o
r

t
h
e

h
e
l
p

o
f

h
is
br
e
t
hren
,

a
n
d

i
t

i
s

v
a
i
n

f
o
r

h
im

t
o

e
xpe
c
t

i
t

f
ro
m

t
h
e
i
r
b
en
e
vo
l
enc
e

onl
y
.

H
e

w
i
l
l

b
e

m
or
e

l
i
kel
y

t
o

p
r
e
v
a
i
l

I
f

h
e

c
a
n

i
n
t
er
es
t

t
h
e
i
r

s
e
l
f
-
l
ov
e

i
n

h
i
s

f
a
v
o
r
,

a
n
d

s
h
o
w

t
h
e
m

t
h
a
t

i
t
is

f
o
r

t
h
e
i
r

o
w
n

a
d
v
a
n
t
a
g
e

t
o

d
o

f
o
r

h
im

w
h
a
t

he

r
equ
i
r
es

o
f

t
h
e
m
.

..
.

I
t

i
s

n
o
t

f
r
o
m

t
h
e

b
en
ev
o
l
en
c
e

o
f
t
h
e

bu
t
c
he
r
,

t
h
e

b
r
e
w
e
r
,

o
r

t
h
e

b
a
ke
r

t
h
a
t

w
e

e
x
p
e
c
t

o
u
r

d
i
n
n
e
r
,
b
u
t

f
r
o
m

t
h
e
i
r

r
e
g
a
r
d

t
o

t
h
e
i
r

o
w
n

i
n
t
er
es
t


E
ve
ry

i
n
d
i
v
i
d
u
a
l..
.

n
e
i
t
h
er

i
n
t
e
n
ds

t
o

p
ro
m
o
t
e

t
h
e

p
u
b
l
i
c

i
n
t
e
r
e
s
t
,

n
o
r
k
n
o
w
s

h
o
w

mu
c
h

h
e

i
s

p
r
o
m
o
ti
n
g

i
t
.".
.
.
.

H
e

i
n
t
e
n
d
s

o
n
l
y

h
i
s

o
w
n

g
a
i
n
,

a
n
d

h
e

i
s

i
n

t
h
is
,

a
s

i
n

m
a
n
y

o
t
h
e
r

c
a
s
e
s
,

l
e
d

b
y

a
n

i
n
v
i
s
ibl
e

h
a
n
d

t
o

pro
m
o
t
e

a
n

en
d

w
h
i
c
h

w
a
s

n
o

p
a
r
t

o
f

h
i
s

i
n
t
en
t
i
o
n
.

N
o
r

i
s

i
t

a
l
w
a
ys

t
h
e

w
or
s
e

f
o
r
t
h
e

s
o
c
i
e
t
y
t
h
a
t

i
t

w
a
s

n
o

p
a
r
t

o
f

i
t
.

B
y

p
u
r
s
u
i
n
g

h
i
s

o
w
n

i
n
t
e
r
es
t

h
e

f
r
e
qu
e
n
t
l
y

p
r
o
m
o
t
e
s

t
h
a
t

o
f

t
h
e

s
o
c
i
e
t
y

more

e
ff
e
c
t
u
a
ll
y
.

t
h
a
n

w
h
e
n

h
e

r
e
a
ll
y

i
n
t
end
s

t
o

pro
m
o
t
e

i
t
.

,


Smit
h

i
s

s
ay
i
n
g

t
h
a
t

p
a
r
tici
p
a
n
t
s

i
n

t
h
e

e
c
o
n
om
y

ar
e

motivate
d

by

self
-
interes
t

an
d

tha
t

t
h
e


i
n
v
i
s
i
b
l
e

hand
"

o
f

th
e

ma
r
k
e
t
pl
a
c
e

guides

this
s
elf
-
intere
s
t into
promoting g
e
r
er
a
l

e
c
o
n
o
m
i
c

wel
l
-
b
e
i
n
g
.

Ma
n
y

o
f

Sm
i
t
h'
s

ins
i
g
ht
s

r
em
a
i
n

a
t

t
h
e

c
e
nt
e
r

o
f

m
o
de
r
n

e
c
onomics
.

Ou
r

an
a
l
y
si
s

i
n

th
e

c
o
min
g

c
h
a
p
te
r
s

w
i
l
l

a
llo
w

u
s

t
o

expre
s
s

Smith
'
s

co
n
c
l
u
sion
s

mo
r
e

precis
e
l
y
an
d

t
o

an
a
lyz
e

f
u
ll
y

th
e

s
t
rength
s

an
d

wea
k
nes
s
e
s

o
f

th
e

m
a
r
k
e
t
'
s

invis
i
b
l
e

hand.




Economis
t

a
s

a

Scientis
t

While

econo
m
ists

don
'
t

use

test

tubes

or

telescopes,

th
e
y

are

scientists

because

t
h
e
y

e
mplo
y

t
h
e

s
c
i
e
n
ti
fi
c

m
e
th
o
d

th
e

dis
p
assio
n
at
e

and
ob
j
e
c
t
i
v
e

d
e
v
e
l
op
m
en
t

an
d

testin
g

o
f

t
h
eories.


Th
e

scien
ti
fi
c

method
:

observation
,

t
heo
r
y
,

a
n
d

mor
e

observatio
n

j
us
t

a
s

i
n

othe
r

sciences
,

a
n

econ
o
m
i
s
t

o
b
ser
v
e
s

a
n

ev
e
nt
,

develop
s

a

theor
y
,

an
d

collec
ts
dat
a

t
o

t
es
t

t
h
e

theor
y
.

A
n

econ
o
m
i
s
t

o
b
ser
v
e
s

inf
l
ati
o
n
,

creat
e
s

a

t
h
eor
y

th
a
t

e
xce
s
s
iv
e

g
r
o
w
t
h

i
n

m
o
n
e
y

ca
us
e
s

inf
l
a
t
ion
,

a
n
d

th
e
n

c
ol
lec
t
s

d
a
t
a

o
n

m
o
n
e
y

growth

a
nd
inflation

to

see

if

there

is

a

relationship.

Collecting

data

to

test

econo
m
i
c

theories

is

difficult,

however,

because

econ
o
m
is
t
s

usually

cannot

create

data

fr
o
m

experiments.
That

is,

econo
m
ists

cannot

manipulate

the

econo
m
y

just

t
o

t
e
s
t

a

t
h
e
o
r
y
.

T
h
e
r
e
f
o
r
e
,

e
c
on
o
m
i
s
t
s

o
f
t
e
n

u
s
e

d
a
t
a

g
at
h
e
r
e
d

f
r
o
m

h
i
s
torica
l

e
c
on
o
m
i
c

eve
n
ts.


Th
e

r
ol
e

o
f

as
s
u
m
p
t
i
o
n
s
.

As
s
u
m
p
t
i
o
n
s

a
r
e

m
a
d
e

t
o

m
a
k
e

t
h
e

w
o
r
l
d

e
a
s
i
e
r

t
o

understand.

A

ph
y
s
icist

ass
u
mes

an

object

is

f
alling

in

a

vacu
u
m

when

measu
r
in
g

acceleratio
n

d
u
e

t
o

gravit
y
.

Thi
s

ass
u
mptio
n

i
s

reaso
n
abl
y

acc
u
rat
e

fo
r

a

mar
b
l
e

bu
t

no
t

f
o
r

a

b
eac
h

ba
ll
.

A
n

e
con
o
mis
t

m
a
y

as
s
u
m
e

t
h
a
t

pric
es

a
re

fixe
d

(ca
n
'
t

b
e

ch
a
ng
e
d
)

o
r
ma
y

ass
u
m
e

t
h
a
t

p
rice
s

ar
e

fle
x
i
b
l
e

(ca
n

m
ov
e

u
p

o
r

do
w
n

i
n

r
e
spons
e

t
o

marke
t

pressures)
.

Sinc
e

price
s

ofte
n

canno
t

b
e

change
d

quickl
y

(th
e

m
e
n
u

i
n

a

r
es
t
a
u
r
a
n
t
is
expe
n
s
i
v
e

t
o

chan
g
e
)

bu
t

ca
n
b
e

c
h
an
ge
d

easil
y

ove
r

time
,

i
t

i
s

reasonabl
e

fo
r

econ
o
m
ist
s

t
o

ass
u
m
e

t
h
a
t

p
rice
s
ar
e

fi
x
ed

i
n

th
e

s
ho
r
t

r
un

but

flexible

in

the

long

run.

The

art
of

scientific

thinking

is

d
e
ciding

which

ass
u
m
p
tions

to

m
a
k
e
.


Econo
m
ic

models

Biology

teachers

e
m
ploy

plastic

m
odels

of

th
e

hu
m
an

bod
y
.

T
h
ey

ar
e

si
m
p
le
r

t
h
an

t
h
e

act
u
a
l

hu
m
a
n

b
ody

b
u
t

t
h
a
t

i
s

w
h
a
t

m
a
k
e
s

the
m

use
fu
l.
Econ
o
m
i
st
s

u
s
e

econ
o
m
ic

model
s

tha
t

ar
e

c
o
mpose
d

o
f

diagram
s

a
n
d

e
qua
tio
n
s
.

Econ
o
mi
c

m
o
del
s

ar
e

base
d

o
n

ass
u
m
p
ti
o
n
s

an
d

ar
e

s
i
mpl
i
f
i
catio
n
s

o
f

ec
o
no
m
i
c

r
ea
li
t
y.


Ou
r

firs
t

model
:

th
e

c
i
r
c
ular
-
fl
o
w

diagram
.

Th
e

circular
-
f
lo
w

di
a
g
r
a
m

s
hows

the

flow

of

goods

and

services,

facto
r
s

of

production,

and

monetary

p
a
yments
between

households

and

fi
r
ms.

Households

s
e
ll

the

factors

of

production,

such

as

land,

labor,

and

capital

to

f
ir
m
s,

in

the

market

for

factors

of

pr
o
duction.

In

e
x
c
h
a
ng
e
,

th
e
hous
e
h
old
s

receiv
e

w
a
ge
s
,

r
e
nt
,

a
n
d
profit
.

Hous
e
h
old
s

us
e

th
es
e

doll
a
r
s

t
o
bu
y
g
o
od
s

a
n
d

se
rvi
ce
s

fro
m

f
i
r
ms

i
n

th
e

m
ark
e
t

f
o
r
g
o
o
d
s

a
n
d services.

The

fir
m
s

u
s
e

this
revenue

to

p
a
y

for

the

factors

of

pr
o
duction,

and

so

o
n
.

Thi
s

i
s

a

s
i
m
plif
i
e
d

m
o
d
e
l

o
f

th
e

enti
re

e
con
o
m
y
.

Thi
s

ve
r
sio
n

o
f

th
e

circula
r

flo
w

diagra
m

h
a
s

b
e
e
n

s
i
mp
l
ified
beca
u
s
e

it

exclude
s

interna
t
iona
l

tra
d
e

a
n
d

th
e

government.


Our second model: the

production

possibilities

frontier.

A

production

possibili
t
ie
s

f
ron
t
ie
r

i
s

a

g
r
ap
h

t
h
a
t s
h
ow
s

th
e
co
m
b
ination
s

o
f

ou
t
pu
t

th
e
e
c
on
o
m
y

ca
n
possibl
y

produc
e

gi
v
e
n

t
h
e

availabl
e

factor
s

o
f

prod
u
ctio
n

an
d

th
e

a
v
ail
a
b
l
e

p
r
o
ducti
o
n

tec
h
n
o
l
o
g
y
.

It

i
s
d
r
a
w
n

ass
u
m
i
n
g

t
h
e

e
c
o
n
o
my

p
r
o
du
ces

o
n
ly

two

g
oods.

This

m
odel

de
m
onstrates

the

following

econo
m
ic

principles:

A
s

s
o
c
i
a
l

s
c
ie
nti
s
t
s
,

e
c
on
o
m
i
s
t
s

s
e
e
k

t
o

di
s
c
ov
e
r

h
o
w

th
e

e
c
on
o
m
i
c

w
orl
d

w
o
rk
s
.

In

pursuit

of

t
h
is

goal,

like

all

scientists,

t
hey

distin
g
u
i
sh

between

two

t
y
pes

of

s
t
a
te
me
n
t
s
:



Positiv
e

sta
t
emen
ts



No
r
m
ative

s
t
at
e
ments


Positive Statements

Positive

stateme
n
ts

are

about

what

is.

Th
e
y

say

what

is cu
r
rently

believed

about

t
h
e

way

t
h
e

w
o
rl
d

op
erates
.

A

p
o
siti
v
e

stateme
n
t

mi
gh
t

b
e
ri
g
h
t

o
r
wr
on
g
.

Bu
t we

ca
n
tes
t a
p
o
sit
i
v
e

stat
e
me
n
t

b
y

c
h
e
c
k
in
g

it

a
g
a
i
n
st

t
h
e

facts
.

"
O
u
r

p
l
a
n
e
t

i
s

war
m
in
g

be
c
a
us
e

o
f

t
h
e

am
oun
t

o
f

c
o
a
l

tha
t

we'r
e
burning
"

i
s

a

positiv
e

st
a
t
e
-

ment
.

"
A r
is
e
i
n

th
e m
inimu
m

wag
e

wil
l
br
i
n
g

m
o
r
e

teenag
e

unemplo
y
m
ent
"

i
s

a
n
o
th
e
r

po
s
i
t
iv
e

s
t
a
t
eme
n
t
.

E
a
c
h

s
t
a
t
eme
n
t

m
igh
t

b
e

rig
h
t

o
r

wron
g
,

an
d

i
t

ca
n
b
e

teste
d
.

A

centra
l

tas
k

o
f

econ
o
m
ist
s

i
s

t
o

tes
t

po
s
itiv
e

stateme
n
t
s

abou
t

ho
w

th
e

ec
o
n
o
m
i
c

w
orl
d

w
o
r
k
s

a
n
d

t
o

we
e
d

ou
t

th
o
s
e

t
h
a
t

a
r
e

w
rong
.

Ec
o
n
o
m
ic
s

firs
t

g
o
t

of
f

t
h
e

g
r
o
u
n
d

i
n

t
h
e

lat
e

1700
s

(se
e

Ey
e

o
n

th
e

Pas
t

o
n

p
.

1
7)
,

s
o

ec
o
n
o
m
ic
s

i
s

a

y
o
u
n
g

subject

c
o
m
p
a
r
ed

with,

f
o
r

ex
a
m
p
l
e,

m
ath

a
nd

ph
y
sics,

and

m
u
ch

r
e
mains

to

be

di
sc
ov
e
r
e
d.



Norm
a
t
iv
e

Sta
t
emen
t
s

Normat
iv
e

s
t
a
te
me
n
t
s

a
r
e

s
t
a
te
m
e
n
t
s

ab
o
u
t

w
h
a
t

oug
h
t

t
o

be
.

T
h
e
s
e

s
t
a
te
me
n
t
s

depend

on

val
u
es

and

cannot

be

tested.

The

statement

"We

ought
to

cut

back

o
n

our

use

of

coal"

is

a

no
r
m
a
tive

statement.

"The

m
i
n
i
m
u
m

wage

should

not

be

in
c
r
e
as
e
d
"

i
s

a
noth
e
r

n
or
m
at
iv
e

s
t
a
t
e
me
n
t
.

Yo
u

ma
y

ag
r
e
e

o
r

disagre
e

with
e
it
h
e
r

o
f

thes
e

statements
,

bu
t

yo
u
c
a
n
't

tes
t
the
m.

The
y

expres
s

a
n
opin
i
o
n
,

b
u
t

th
ey

don
'
t

asser
t

a

fac
t

tha
t

ca
n

b
e

c
h
ecked
.

An
d

the
y

ar
e

no
t

economics.



Unscrambling Cause
a
nd Effect
E
con
o
m
i
s
t
s

a
r
e

e
s
p
e
c
i
a
l
l
y

in
t
e
r
es
t
e
d

i
n

p
o
si
t
iv
e

s
t
a
t
e
m
e
nt
s

a
b
ou
t

c
a
u
s
e

an
d

e
ff
e
ct
.

Are

co
m
puters

g
etting

cheaper

because

pe
o
p
l
e

are
b
u
y
i
n
g

t
h
e
m

in

g
r
ea
t
e
r

qu
a
n
tities
?

O
r

ar
e

peopl
e

bu
y
in
g

c
o
m
puter
s

i
n

grea
t
e
r

q
u
antitie
s

beca
u
s
e

t
h
e
y

ar
e

gettin
g

chea
p
er
?

O
r

i
s

s
o
m
e

t
h
ir
d

facto
r

causin
g

bot
h

th
e

pric
e

o
f

a
c
o
m
pute
r

t
o

fal
l

an
d

th
e

q
u
antit
y

o
f

c
o
mputer
s

t
o

increase
?

The
s
e

ar
e

e
x
a
m
p
l
e
s

o
f

positiv
e

sta
t
ement
s

t
h
a
t

econ
o
m
is
ts

wan
t

t
o

t
est
.

Bu
t

doin
g

s
o

ca
n

b
e

difficult.

Th
e

centra
l

i
d
e
a

tha
t

economist
s

(an
d

al
l

scien
t
ists
)

us
e

t
o

unscram
b
l
e

ca
u
s
e

a
n
d

e
ffec
t

i
s

ceteri
s

paribus
.

Ceteri
s

par/bu
s

i
s

a

Lati
n

te
r
m

(ofte
n

abbreviate
d

a
s

cet
.

par.
)

t
h
a
t

m
e
a
n
s
"othe
r

thin
g
s

bein
g

equal
"

o
r

"i
f

a
l
l

ot
h
e
r

re
l
e
v
a
n
t

t
h
i
n
g
s

remai
n

t
h
e

s
a
me."

E
n
s
u
ri
n
g

t
h
at

o
t
h
er

t
h
i
ng
s

are

e
q
u
al

is

cr
u
cial

i
n

m
any

activities,

incl
ud
i
ng

athlet
ic

ev
e
nts
,

an
d

a
ll
s
u
c
c
e
s
sf
u
l

a
t
te
m
p
ts

t
o

ma
k
e

s
c
ie
n
tif
ic

p
r
ogr
es
s

us
e

th
i
s

d
e
vi
c
e
.

B
y

c
h
a
n
g
in
g
o
n
e

f
a
c
to
r

a
t

a

t
i
m
e

a
n
d

hol
di
n
g

a
l
l

t
h
e

o
t
h
e
r

r
e
l
e
v
an
t

fa
ctors

constant,

we

isolate

the

factor

of
interest

and

are

able

to

investigate

its

e
ff
e
c
t
s

i
n

t
h
e

c
l
e
a
r
es
t

p
o
s
s
i
b
l
e

w
a
y
.


I
n

econo
m
ics
,

w
e

o
b
serv
e

th
e

out
c
o
m
e
s

o
f

t
h
e

si
m
u
ltaneo
u
s

o
p
e
r
atio
n

o
f

m
a
n
y

factors.

Consequent
l
y
,

it

is

hard

to

s
o
rt

out

t
h
e

effects

of

each

i
ndividual

fac
to
r

an
d

t
o
c
o
m
p
a
r
e

t
h
e

e
f
f
e
c
t
s

w
it
h

w
h
a
t

a

mo
d
e
l

p
r
ed
i
c
t
s
.

T
o

c
o
p
e

w
it
h

t
hi
s

probl
e
m
,

e
c
on
o
mis
t
s

u
s
e

n
a
tu
ra
l

ex
p
e
r
i
m
e
n
t
s
,

s
t
at
i
s
t
i
c
a
l

in
v
e
sti
g
atio
n
s
,

an
d

econ
o
mi
c

e
xp
er
i
m
e
n
ts.

Protectin
g

Endangered
Specie
s

wit
h

Private
-

Proper
t
y

Rights

Hav
e
yo
u
e
v
e
r

wo
nder
e
d
w
h
y

t
h
e
w
i
l
d

ti
g
er

i
s

e
ndang
e
r
e
d
i
n
muc
h
of
t
h
e

w
o
r
l
d
,
bu
t
m
o
s
t
c
a
t
s

a
r
e
t
h
r
i
v
i
ng
?

O
r

w
h
y

s
p
o
tt
e
d
o
wl
s
a
r
e
t
h
r
ea
t
e
n
ed

i
n

the

Pa
c
ifi
c
N
o
r
t
h
w
es
t
,

bu
t

c
h
ic
k
e
n
s

ar
e
no
t
?
Wh
y
ha
v
e
e
l
e
phan
t

an
d

rh
i
noceros
p
o
pu
l
a
ti
o
n
s

d
e
c
l
i
n
e
d

i
n

nu
m
b
e
r
,
bu
t

no
t
ca
tt
l
e

o
r

hogs
?

T
h
e
i
ncent
i
ve
s
acco
m
pany
i
n
g
pr
i
v
a
t
e
ow
ner
s
h
i
p

p
ro
v
i
d
e

t
h
e

a
n
s
w
er
.

W
h
a
t

d
o

y
o
u

t
h
i
n
k

w
ou
l
d

h
a
ppe
n

t
o
th
e

to
t
a
l

p
o
p
u
l
a
tio
n

o
f

cow
s

if
p
e
o
p
l
e

w
an
t
e
d

l
e
s
s

bee
f
?

B
ee
f

pr
ic
es
woul
d

f
a
ll
,

a
n
d

t
h
e

i
n
c
e
n
t
iv
e

f
o
r

i
nd
i
vi
du
a
l
s

t
o

d
e
d
ic
a
t
e

l
a
n
d

an
d

oth
e
r

r
esour
c
e
s
t
o

rais
i
n
g

c
a
ttl
e

w
o
uld
f
a
ll
.

T
h
e

r
e
s
ul
t

woul
d

b
e

f
e
w
e
r

co
w
s
.

I
t

i
s

p
r
ec
is
e
l
y

t
h
e

mark
e
t

d
e
m
an
d

for
b
e
ef

t
h
at

cr
e
a
t
e
s

t
h
e

i
n
c
e
n
tiv
e

fo
r

su
pp
li
e
r
s

t
o

m
a
i
n
t
a
i
n

h
e
r
d
s
o
f

c
a
ttl
e
an
d

t
o

p
r
o
t
e
c
t

t
he
m

un
de
r

a

s
y
s
t
e
m

o
f

pr
iva
t
e

o
wn
e
rs
h
ip
.

I
n

som
e

ways
,

th
e

rhino
c
e
ro
s

i
s

simila
r

t
o

a

cow
.

A

rhino
,

li
k
e

a

l
a
rg
e

b
u
l
l

in
a

ca
tt
l
e

h
e
r
d
,

ma
y

c
h
a
r
g
e

i
f

d
i
s
t
u
r
be
d
.

A
t
3,
0
0
0

p
oun
d
s
,

a

ch
a
r
g
i
n
g

r
h
ino
ca
n
b
e

v
e
r
y

dangero
u
s

t
o

hu
m
an
s
.

Als
o

l
i
k
e

c
a
tt
l
e
,
rh
i
n
o
s
ca
n

be
v
a
lua
b
l
e

a

sin
g
l
e

ho
r
n

fro
m

a

b
l
ac
k

r
h
i
no
,

u
se
d

fo
r

ar
ti
s
ti
c

carv
in
g
s
a
n
d
med
ic
i
nes
,

ca
n

s
e
l
l

fo
r

u
p

t
o

$30,000
.

T
h
a
t

m
ake
s

i
t

a

favori
t
e

t
a
r
ge
t
o
f
p
o
a
c
h
e
rs

p
e
o
p
l
e

w
h
o

hu
n
t

ill
ega
ll
y
.

P
o
a
ch
e
r
s

a
r
e

so
m
e
tim
es

e
v
en
ass
i
s
t
ed
b
y

l
oca
l

p
e
o
p
l
e

e
a
g
er
t
o

se
e

f
e
w
e
r

r
h
in
o

p
r
e
s
en
t

be
c
a
us
e

the
y

mak
e

life
risk
y

f
o
r

h
u
m
a
n
s

an
d

c
omp
e
t
e

f
o
r

f
oo
d

a
n
d

w
a
t
e
r.

H
o
w
e
v
e
r
,

r
h
i
n
o
s

a
r
e

v
er
y

di
ff
e
r
en
t

f
r
o
m

c
att
l
e

i
n

o
n
e

impo
r
t
an
t

r
e
sp
e
ct
:
In

m
o
s
t
o
f

Af
ri
c
a

w
h
e
r
e

t
h
e
y

n
a
t
ur
a
ll
y

ra
nge
,

p
r
i
v
a
t
e

o
w
ne
r
sh
i
p

o
f

t
h
e

rh
i
n
o
i
s

pr
o
h
i
bi
t
e
d
.

S
i
nc
e

1
9
77
,

m
an
y

n
at
i
o
n
s

hav
e

out
l
a
w
e
d

r
h
i
n
o

h
u
n
t
i
n
g

and
fo
rbad
e

th
e
sal
e

o
f
rhin
o
parts
.

Bu
t

t
hi
s

approac
h
ha
s
on
l
y

m
ad
e

th
i
n
g
s
w
ors
e

fo
r

t
h
e

rh
i
no
:

bet
w
ee
n

197
0
an
d

199
4

t
h
e

n
u
mb
e
r

of

b
l
a
ck

r
h
i
n
os
dec
lin
e
d

b
y

9
5

p
er
c
en
t
.
1

Acc
o
r
d
in
g

t
o

S
ou
t
h

Africa
n

e
co
n
omis
t

M
i
cha
e
l

'
t

S
a
s

Rol
fe
s

t
h
e

t
ra
d
e
d

ba
n

"
ha
s

no
t

ha
d

a

d
i
scern
i
b
l
e

effec
t

o
n

rh
i
n
o

nu
m
ber
s

a
n
d

doe
s

no
t

see
m
t
o

hav
e

s
t
oppe
d

t
h
e

t
r
ad
e

i
n

r
h
i
n
o

h
o
r
n
.

I
f
any
t
h
in
g
,

t
h
e

..
.

li
s
t
ing
s

l
e
d

t
o

a

shar
p

in
cr
e
a
s
e

i
n

th
e

b
l
ac
k

m
ark
et
pr
i
c
e

o
f

r
h
i
n
o

horn
,

w
h
ic
h

si
m
p
l
y

fue
l
e
d

fur
t
he
r

poac
h
i
n
g

a
nd


e
n
co
u
r
ag
e
d

sp
e
culativ
e

stockpilin
g

o
f

horn."

B
u
t

w
h
a
t

i
f

t
h
e

po
w
e
rfu
l

i
n
centive
s

cre
a
t
e
d

b
y

priv
a
t
e

I

own
e
r
s
h
i
p
w
e
r
e
i
n
stea
d

br
o
u
gh
t

t
o

b
e
a
r

o
n

th
e

r
h
i
n
o
?

T
h
i
s

w
a
s

don
e

dur
i
n
g

t
h
e

1980s
an
d

1990
s

i
n

t
h
e

souther
n

Afr
i
c
a
n

n
a
ti
o
n

o
f

Z
im
bab
w
e
.
Lando
wn
e
r
s
w
e
r
e
a
ll
o
w
e
d

t
o
fen
c
e

a
n
d

ma
n
ag
e

t
h
e

gam
e

an
im
a
l
s

o
n

th
e
i
r

pr
o
p
er
ty
.

B
ec
a
u
s
e
the
y

coul
d
profi
t

f
r
o
m
pro
t
e
ctin
g

t
h
e

bi
g

an
i
mals
,

so
m
e

ran
c
h
e
r
s
s
h
ifted
t
he
i
r

op
e
r
a
t
i
o
n
s

fro
m

cattl
e

t
o

wil
d
li
f
e

p
r
o
t
e
cti
o
n
,

e
co
t
ouri
s
m
,
an
d
h
u
nti
n
g
,
of
t
e
n

i
n

c
oope
r
a
ti
o
n

wit
h

ne
i
ghb
orin
g

l
and
own
e
r
s
t
o
cr
ea
t
e

l
a
rge
cons
e
r
v
anc
i
e
s
.
R
e
v
en
u
e
s
fro
m
th
e
cons
e
r
v
anc
i
e
s
c
a
m
e
bot
h
fro
m
hunting
m
a
n
y

b
i
g

g
am
e

an
im
a
l
s

an
d

fro
m

n
o
n
-
consu
m
p
ti
v
e

use
s

o
f

wil
d
lif
e
,

suc
h

as
pho
t
o

s
a
f
a
r
i
s
.

U
n
d
e
r

th
e
s
e

ru
l
es
,
t
h
e

b
l
ac
k

r
h
in
o

popul
a
tio
n

cl
i
mbed
d
r
a
m
ati
c
ally
.

A

simila
r

suc
c
es
s

s
tor
y

i
s

fou
n
d

i
n

Sout
h

Afric
a

fo
r
th
e
Africa
n

w
h
i
t
e

r
h
i
n
o
.
2

T
h
e

rhin
o

stor
y

e
c
h
o
e
s

earli
e
r

succes
s

wit
h

usi
n
g

privat
e
-
p
r
op
e
r
t
y

ri
g
h
t
s

to

h
e
l
p

s
a
v
e

el
e
p
h
an
t
s
.

W
h
il
e

s
o
m
e

c
oun
t
r
i
e
s
,

s
u
c
h
a
s

K
e
n
y
a
,
b
a
nn
e
d

the
ivor
y

trad
e
a
n
d

fo
r
b
ad
e

e
l
epha
n
t

hu
n
t
i
n
g
,

other
s

l
i
k
e

Zi
m
ba
b
w
e

and
B
o
ts
w
an
a

al
l
o
w
e
d

do
m
es
t
i
c

t
rad
e

i
n

i
vor
y

an
d

a
ll
o
w
e
d

l
and
ow
n
e
r
s

a
n
d

l
oc
a
l
t
r
i
be
s

t
o

b
e
nefi
t

f
i
nancial
l
y

fro
m

t
h
e

presenc
e

o
f

e
l
e
ph
a
n
t
s
t
h
rou
g
h
q
u
a
s
i
-

pr
i
va
t
e

o
wn
e
rsh
i
p

arr
an
g
e
m
en
t
s
.

T
h
e

r
e
su
lt
?

Fro
m

197
9

t
o
19
8
9
,

pr
op
er
t
y
r
i
gh
t
s

a
n
d

m
a
r
k
e
t
co
n
serv
a
t
io
n

he
l
pe
d

pus
h

e
l
ephan
t

nu
m
ber
s

from

50,00
0

u
p

t
o

9
4,00
0

i
n
Zim
b
a
b
w
e

a
n
d

Botswa
na
,
w
h
il
e

K
e
n
ya
'
s
e
l
e
p
h
an
t
popu
l
a
ti
on
fe
ll

fro
m

6
5
,00
0
t
o

1
9
,
000
. B
e
t
w
ee
n
1
9
8
9

an
d

199
5
,

e
l
eph
an
t
p
o
p
u
l
a
tio
n
s

i
n

Zimbabw
e

a
n
d

Bo
t
s
w
an
a

ro
s
e

b
y

ab
ou
t
1
5

p
e
r
c
e
n
t
,

w
h
il
e
th
e

r
e
s
t

o
f

A
fric
a

lo
s
t

a
b
ou
t

2
0

percen
t

o
f

i
t
s

e
l
ephan
t
s.

T
h
e

recen
t

s
t
or
y

I
n

Zi
m
bab
w
e

i
s

no
t

a

happ
y

one
.

Z
i
mbab
w
e

ha
s

been
p
l
agu
e
d

b
y

a

c
i
vi
l

w
a
r

tha
t

ha
s

d
e
v
as
t
a
t
e
d

b
o
t
h

co
n
s
e
rv
a
tor
y

f
a
ciliti
e
s

a
n
d

a
l
a
rg
e

s
h
a
r
e

o
f

th
e

a
n
ima
l
popu
l
at
i
ons
.
I
n

Sout
h
Afr
i
ca
,

ho
w
e
ver
,

pro
p
er
t
y
r
i
gh
t
s

t
o

w
i
ld
lif
e

h
av
e

bee
n

m
a
i
n
t
a
ine
d
.

Owner
s

a
r
e

a
b
l
e

t
o

g
a
m
e
-
f
en
c
e

l
a
n
d
p
a
rcel
s

(tha
t

is
,

b
ui
l
d

a

t
a
l
l

fe
n
c
e

usin
g

tw
e
l
v
e

s
t
ra
n
d
s

o
f

h
i
gh
-
t
ens
i
l
e

wir
e
)
.
T
h
i
s
mak
e
s
priva
t
e

o
w
n
e
rshi
p
o
f
t
h
e

wil
d
animal
s
poss
i
bl
e
.
Und
e
r
t
h
e
s
e
circumst
an
c
e
s
,

ow
ne
r
s
ha
v
e

a

stro
n
g

i
n
c
en
t
iv
e

t
o

m
ana
g
e

t
h
e

wil
d

an
im
a
l
s
a
s

the
y

mi
gh
t

th
e
i
r
c
a
ttl
e
,
p
a
y
in
g

clos
e

a
tte
n
tio
n

t
o

carr
y
in
g

ca
p
acit
y
,
habitat
,

an
d

wa
t
e
r
.
T
h
e

experien
c
e

o
f

A
fric
a

indic
a
t
e
s

th
a
t

the
establi
s
h
m
en
t

o
f

o
w
n
e
r
sh
i
p

r
i
ght
s

pr
o
v
i
d
e
s

t
h
e

ke
y

t
o

p
r
ot
e
ctio
n

o
f
b
ot
h
wil
d

lif
e

a
n
d

th
e
i
r

ha
b
itatio
n
s
.
3

Pre‐
C
our
se

A
ssignment

Pra
c
t
i
c
e
P
r
ob
le
m
s
-

Define

economics

and

explain

the

kinds

of

questions

t
h
at

economis
t
s

try

t
o
answer.

1
.

Econo
m
ic
s

stu
d
ie
s

choice
s

tha
t

a
ris
e

f
r
o
m

o
n
e

f
a
ct
.

Wha
t

i
s

tha
t

f
a
ct?

2
.

Provi
de

thre
e

e
xampl
es

o
f

wa
n
t
s

i
n

th
e

Unit
ed

S
ta
te
s

t
o
da
y

tha
t
a
r
e
esp
e
ciall
y

pr
e
ssin
g

bu
t
n
o
t
sat
i
s
f
ied.

3
.

W
hi
c
h

o
f

t
h
e

f
ol
l
ow
i
n
g

h
e
a
d
li
n
e
s

d
e
al
s

wi
t
h

w
h
a
t
,

km
,

a
n
d
/
o
r

who
m

q
u
es
t
i
o
n
a
.


Wit
h

mor
e

r
e
se
a
rch
,

w
e

wil
l

cur
e

cancer.

b
.

A good educati
o
n is the right of
e
v
ery child.

c
.

The government

must trim its b
u
dget deficit.


4
.

Ex
p
l
ai
n

ho
w

th
e

followin
g

hea
d
li
n
e
s

concer
n

s
e
lf
-
interes
t

a
n
d

socia
l

interest

a
.

Wh
o
l
e
F
oo
d
s
,

a

U.S
.

s
u
perma
r
k
e
t
,

i
s

o
p
e
n
in
g

i
n

Brit
a
i
n
a
n
d

Star
bu
ck
s

i
s

e
v
e
r
y
whe
r
e

i
n

Ch
i
na.
b
.

Cigarette packs

must carry a health warning.


Exe
r
ci
s
e
s

1
.

Ever
y

day
,

w
e m
ak
e

ma
ny

choic
e
s
.

W
hy

can'
t

w
e

avoi
d

h
a
vin
g

t
o

mak
e

choices
?

2
.

Look at today's

newspaper and find an example

of a want that is not
s
ati
s
f
i
e
d
.

3
.

Chec
k
th
e

loca
l
medi
a
fo
r

hea
d
line
s

tha
t

as
k

t
w
o

o
f

t
h
e

w
h
at
,
ho
w
,
an
d

fo
r

w
h
o
m

q
u
es
t
i
on
s
.


4
.

W
hi
c
h

o
f

t
h
e

f
ol
l
ow
i
n
g

h
e
a
d
li
n
e
s

d
e
al
s

wi
t
h

what
,

how
,

a
n
d

f
o
r

w
h
o
m

q
u
e
s
t
io
n
s
?

a
.

Majo
r

l
e
agu
e

ba
s
eb
a
ll
's

tur
f

ke
ep
er
s

ear
n

ab
o
u
t

$
85,000
,

umpir
es

ear
n

abou
t

$350
,
000
,

an
d

pl
a
y
er
s

mak
e

m
i
lli
o
n
s

a

year.
b
.


Man
y

f
u
ll
-
servic
e

ga
s

sta
t
io
ns

ar
e

swi
t
chin
g

t
o

s
e
l
f
-
serve.

c
.

R
et
a
i
l
tr
e
n
d
s

a
n
a
l
y
s
t
s

m
a
k
e
a
s

m
uc
h
a
s

$
30
0
,0
0
0

a

y
ear
,

wh
il
e

r
e
ta
i
l

s
a
l
e
speo
p
l
e

m
ak
e

les
s

th
an

$
10

a
n
hour.


5
.

Ex
p
l
ai
n

ho
w

th
e

followin
g

hea
d
li
n
e
s

concer
n

s
e
lf
-
interes
t

a
n
d

socia
l

interest
a
.

Presi
d
en
t

Geor
ge

W
.
B
u
s
h

p
ower
s

h
i
s
Tex
as

ra
n
c
h

wi
th
s
o
la
r

e
l
e
ct
r
i
c
i
t
y.

b
.


Today
's

upper
-
clas
s

trav
e
l
e
r

go
es

o
n

safar
i

i
n

so
u
ther
n

Afric
a

o
r

s
t
ay
s

a
t

e
c
o
-
resor
ts

tha
t

c
o
s
t

$
1
,0
00

a

nigh
t

b
ut
d
o

no
t
h
a
v
e

e
l
e
c
t
r
i
c
i
t
y
.






G
o

to

the

following

website:

http://ref
fo
nomics.com




Click

o
n

t
h
e

ta
b

ti
t
le

BASIC

CONCEPTS




Read

an
d

ta
k
e

notes

o
n

th
e

following

t
u
torial

slide

shows

a)

What

is

economics?

b)

Scarcity

c)


Opport
u
nity

Cos
t

(
2
n
d

ed
i
t
io
n)

d)

Resources

(
2
n
d

ed
i
tion)

e)

Economic

S
y
stems

f)


Terms

in

Ec
o
nomics




Complete

an
d

print

results

from

t
h
e

Multiple

choi
c
e

questions

link

to

turn

in

t
h
e

first

day

o
f

class.




Answer

t
h
e

fo
llowing

q
ue
stions

below.


1)

What

is

Economics?

Exp
l
ain

t
h
e

possib
l
e

“economic

cost”

in

each

of

the

f
ollowing

scenar
i
os.

1)

The

o
p
portu
n
ity

cost

o
f

showering

and

grooming

an
d

eat
i
ng

a

c
o
mple
t
e

b
r
ea
k
fast

in

the

mo
rning:

2)

The

o
p
portu
n
ity

cost

o
f

n
o
t

showering

a
nd

grooming

in

the

morni
n
g:

3)

The

o
p
portu
n
ity

cost

o
f

n
o
t

eat
i
ng

bre
a
kfast:

4)

The

o
p
portu
n
ity

cost

o
f

sl
e
eping

in

a
n

e
xtra

hour

each

morn
i
ng:

5)

The

o
p
portu
n
ity

cost

o
f

w
a
king

up

an

h
o
ur

earlier

each

morn
i
ng:

6)

The

o
p
portu
n
ity

cost

o
f

studying

on
e

subject

more

t
h
an

another:

7)

The

o
p
portu
n
ity

cost

o
f

b
u
ying

a

new

C
D

by

your

fa
v
o
rite

artist:

1.2

THE ECONOMIC Way of thinking




T
h
e

d
efi
n
itio
n

o
f

ec
o
n
o
m
i
c
s

a
n
d

t
h
e

k
i
nd
s
o
f

q
u
esti
on
s

t
h
a
t

e
c
on
o
mist
s

tr
y

t
o

answe
r

giv
e

yo
u

a

flavor

of

the

scope

of

econo
m
i
cs
.

B
u
t

t
h
e
y

d
o
n
'
t tell

yo
u
h
o
w
econo
m
is
ts
thin
k

a
b
o
u
t

thes
e

qu
estio
n
s

a
n
d

g
o
ab
ou
t

see
k
i
n
g

a
n
swer
s

t
o

t
h
em
.

You
'
re

now

going

to

see

how

econo
m
is
t
s

approach

their

work.

We
'
l
l

brea
k

thi
s
tas
k

int
o t
h
re
e

parts
.

F
i
rst
,

we
'
l
l

explai
n

t
he

cor
e

idea
s

tha
t

ec
o
no
m
is
t
s

cons
t
antl
y

an
d

re
p
ea
t
edl
y

us
e

t
o

f
r
a
m
e

t
h
ei
r

vi
e
w

o
f

t
h
e

w
o
rl
d
.

T
h
e
s
e

i
d
ea
s

wil
l

soon

hav
e
y
o
u

thi
n
kin
g

lik
e

a
n

econ
o
mist
.

Second
,

we
'
l
l

ex
p
lai
n

t
h
e

d
istinctio
n

bet
w
ee
n

th
e

mi
c
r
o

a
n
d

ma
c
r
o

vie
ws

o
f

th
e

eco
no
m
i
c

w
o
rld
.

Finall
y
,
w
e
'
l
l

look

at

econ
o
mics both
as

a

social

sc
i
ence

and

as

a poli
c
y

tool

that

govern
m
e
n
ts,

businesses,

and

you

can

use.


C
OR
E

E
CONOMI
C

I
D
EA
S

Fiv
e

cor
e

idea
s

summariz
e

th
e
ec
o
no
m
i
c

approac
h

o
r

econo
m
i
c

wa
y

o
f
thinkin
g

abo
u
t

th
e

c
hoice
s

t
h
at

m
u
st

be

made

to

cope

with

s
c
arcit
y
:



People

mak
e

rationa
l

choice
s

b
y

comp
a
rin
g

cost
s

an
d

ben
e
fits.



Cost

is

w
ha
t

y
o
u

m
u
s
t

giv
e

u
p

t
o
g
e
t

som
e
thin
g
.



Benefit

is

w
h
at

you

g
a
in

w
he
n

you

get

s
o
m
e
th
i
ng

a
n
d

is

me
asu
re
d

by

w
ha
t

y
o
u

a
r
e
willin
g

t
o

giv
e
u
p

t
o

ge
t
it.



a

rationa
l

choic
e

i
s

mad
e

o
n

th
e

m
a
rgi
n
.




Choice
s
respon
d
t
o

ince
n
t
ives.



R
ATIO
NA
L

C
HOI
C
E


The

m
o
s
t

b
as
ic

idea

of

e
c
ono
m
i
cs

is

that

i
n

m
akin
g

ch
o
ices
,

peopl
e

ac
t

rationall
y
.

A

rationa
l

choic
e

i
s

o
n
e

t
h
a
t

u
se
s

t
h
e

a
v
a
i
la
bl
e

r
e
so
u
r
ce
s

t
o

b
e
s
t

a
c
h
i
ev
e

t
h
e

o
b
j
ec
ti
v
e

o
f

t
h
e
person

making

the

choice.

Onl
y

th
e

wa
n
t
s

an
d

p
r
e
f
er
e
nce
s

o
f

th
e

p
e
r
s
o
n

makin
g

a

choic
e

ar
e

rele
v
an
t

t
o

d
ete
r
m
i
n
e

it
s

ra
t
i
on
al
it
y
.

Fo
r

e
x
a
m
p
le
,

yo
u

m
i
gh
t

li
k
e

c
ho
colat
e
ic
e

cre
a
m

m
o
r
e

tha
n

vanilla
ice

crea
m
,

but

y
our

friend

prefers

vanilla.

So

it

is

rational

f
o
r

you

t
o

choose

chocolate

and

for

y
our

friend

t
o

choose

van
i
ll
a
.

A

rat
i
on
a
l

c
h
oic
e

m
i
g
h
t

t
u
r
n

o
u
t

n
o
t

t
o

hav
e

be
e
n

t
h
e

bes
t

c
h
o
ic
e

af
t
e
r

t
h
e

event
.

A

farme
r

migh
t

decid
e

t
o

plan
t

w
h
ea
t

rat
h
e
r

t
h
a
n

so
y
bea
n
s
.

T
h
en
,

whe
n

t
h
e

cr
o
p

c
o
m
es

to
market, the

price

of

soybeans

m
ight

be

m
u
ch

higher

than

the

pri
c
e

o
f

w
h
e
a
t
.

Th
e

f
a
r
m
e
r
'
s

ch
oi
c
e

wa
s

r
ati
o
na
l

w
h
e
n

i
t

wa
s

m
a
d
e
,

bu
t

s
u
bseq
u
e
n
t

events made

it

less
profitable

th
a
n

the

alternative

choice.

Th
e

id
e
a

o
f

r
a
ti
o
n
a
l

ch
oi
c
e

p
r
o
v
id
e
s

a
n

a
n
sw
e
r

t
o

t
h
e

f
i
r
s
t

q
u
es
t
i
o
n
:

Wh
a
t

good
s

a
n
d

s
ervice
s

w
il
l

g
e
t

produc
e
d

a
n
d

i
n

w
h
a
t

qu
a
n
t
i
ti
es
?

Th
e

a
n
s
we
r

i
s
:

T
ho
se

t
h
at
people

ratio
n
ally

c
h
oose

to

b
u
y
!

Bu
t
ho
w

d
o

pe
opl
e

c
h
o
os
e

rationa
ll
y
?

W
h
y
hav
e

m
os
t
pe
o
pl
e

c
hos
en

to

b
u
y

Microsof
t
'
s

Wind
o
w
s

operatin
g

s
y
ste
m

rathe
r

tha
n

anoth
e
r
?

Wh
y

d
o

m
or
e

peopl
e

toda
y

choose

t
o

drin
k

bottle
d

wate
r

an
d

s
port
s

energ
y

drink
s

tha
n

d
i
d
i
n

th
e
past
?

W
h
y

h
a
s

t
h
e

U.S
.

g
ov
e
r
nme
n
t

c
ho
se
n

t
o

f
u
n
d

t
h
e

b
u
ildin
g

o
f

a
n

interstat
e
highwa
y

s
y
s
t
e
m

an
d

n
o
t

an

int
e
rstat
e

h
i
gh
-
s
pee
d

r
a
il
r
oa
d

s
yste
m
?

W
e

m
ak
e

r
at
i
ona
l

choic
es

b
y

c
o
m
parin
g

costs

an
d

benefits
.

B
u
t

ec
on
o
m
is
t
s

thin
k

abou
t

cost
s

an
d

benefit
s

i
n

a

s
p
ecia
l

an
d

re
v
e
aling
wa
y
.

L
e
t
'
s

lo
o
k

a
t

th
e

e
c
on
o
mi
c

concept
s

o
f

cos
t

an
d

benefit.

















For th
e
s
e st
u
dents, the o
p
portunity c
o
st

of being in

s
c
hoo
l

i
s

wo
r
t
h

b
e
arin
g
. For
the

full
-
t
im
e fast
-
food work
e
r, the
o
pport
u
nity
cos
t

o
f

re
m
a
i
n
i
n
g

i
n

s
c
hoo
l

is to
o

h
i
gh.



Cost
:

Wha
t

Yo
u

Mus
t

Giv
e

Up


Whateve
r
yo
u

cho
o
s
e

t
o

d
o
,

yo
u

coul
d

hav
e

don
e

somethin
g
els
e

instead
.

Y
o
u

coul
d
hav
e
don
e
lot
s

o
f

thing
s

othe
r

tha
n

wha
t
y
o
u

actuall
y

did
.

Bu
t

on
e

o
f

thes
e

othe
r

things
i
s

th
e

bes
t

alternati
v
e

give
n

up
.

Th
e

bes
t

thin
g

tha
t

y
o
u

m
us
t

giv
e

u
p

t
o

ge
t

s
o
methin
g

is
th
e
opport
un
it
y

cos
t
o
f

th
e
thin
g

tha
t
y
o
u
get
.
Th
e

thin
g

tha
t
y
o
u
coul
d

hav
e

c
h
osen


th
e

highest
-
v
alue
d

alter
n
ativ
e

forgone

i
s

th
e

opportunit
y

cos
t

o
f
th
e

thin
g

tha
t

y
o
u

did
choose.

W
e

us
e

t
h
e

te
r
m

op
p
or
t
u
nit
y

co
s
t

t
o

e
m
ph
a
siz
e

tha
t

wh
e
n

w
e

m
ak
e

a

c
hoic
e

i
n

th
e

fac
e

of
scarcit
y
,

w
e

g
iv
e

u
p

a
n

op
p
ortu
n
it
y

t
o

d
o

s
o
m
e
t
hin
g

e
ls
e
.

Y
o
u

c
a
n

qu
i
t

s
c
ho
o
l

righ
t

now,

o
r

y
o
u

ca
n

remai
n

i
n

scho
o
l
.

Supp
o
s
e

tha
t

i
f

y
o
u

qui
t

school
,

th
e

be
s
t

j
o
b

y
o
u

c
a
n

g
e
t

is
a
t

K
ink
o
'
s
,

w
h
e
r
e

y
o
u

c
a
n

e
a
r
n

$
1
0,00
0

d
u
r
in
g

t
h
e

y
ea
r
.

T
h
e

oppo
r
t
uni
ty

c
os
t

o
f
re
m
ainin
g

i
n

schoo
l

inc
l
ude
s

th
e t
h
ing
s

tha
t

yo
u
cou
ld

h
a
v
e

boug
h
t

wit
h

this

$10,000
.
Th
e

opportunit
y

cos
t

als
o

i
n
clude
s

th
e

val
u
e

o
f

th
e

le
i
s
u
r
e

t
i
m
e

t
h
a
t

y
o
u

mus
t

forg
o

t
o

stud
y
.

Opportuni
t
y

cost

of

the

th
i
ng

you

get

is

only

the

alternative

forgone. It

does

no
t
in
c
lu
d
e

a
l
l

t
h
e

e
x
p
e
nd
i
tu
r
e
s

t
h
a
t
y
o
u

make
.

F
o
r
e
x
ample
,

y
ou
r

ex
p
e
ndit
u
r
e

o
n

t
u
iti
o
n
i
s

part

o
f

th
e

opportunit
y

cos
t

o
f

bein
g

i
n
school
.

Bu
t

you
r

m
e
a
l

pla
n

a
nd'

r
ent

are

not.

Whether

you
'
re

in

school

or

working,

you

m
u
st
e
at

and

have so
m
e
where

to

live. So

the

cost

of

y
our

scho
o
l

meal

plan

and

your

rent

a
re

not

p
a
r
t

o
f

th
e

opportunit
y

cos
t

o
f

bein
g

i
n

school.

Also
,

pas
t

expenditure
s

t
ha
t

canno
t

b
e

reverse
d

ar
e

no
t

par
t

o
f

o
p
p
o
rtu
n
i
ty

cost
.

S
uppos
e

y
ou
'
v
e

pai
d

y
ou
r

term'
s

tuitio
n

an
d

i
t

i
s

nonrefundable
.

I
f

y
o
u

no
w

conte
m
plate

quittin
g

school
,

th
e

pai
d
tuitio
n

i
s

irr
e
levant
.

I
t

i
s

calle
d

a

sun
k
cost
. A

su
n
k

c
os
t

i
s

a

pre
v
iousl
y

incurre
d

a
n
d

irreversibl
e

cost
.

W
h
et
h
e
r

y
o
u

re
m
a
i
n

i
n
sc
ho
o
l

o
r

q
u
i
t

sc
h
o
o
l
,

t
h
e

t
u
it
i
o
n

tha
t

y
o
u
'
v
e

p
a
id

i
s
no
t

p
ar
t

o
f

t
h
e

o
p
po
r
tu
n
i
ty

cos
t

o
f

remainin
g

i
n

school.



Benefit
:

Gai
n

Mea
s
u
r
e
d

b
y

Wha
t

Yo
u

Ar
e

Willin
g

t
o

G
i
v
e

Up

Th
e

be
n
efi
t

o
f

s
o
methin
g

i
s

th
e

gai
n

o
r

pleasur
e

tha
t

i
t

brings
.

Be
n
efi
t

i
s

ho
w

a

p
e
r
s
o
n

f
e
e
l
s

abou
t

s
o
mething
.

Fo
r
e
x
ample
,

y
o
u

m
ig
h
t

b
e

anxio
u
s

t
o

ge
t

Te
k
k
e
n

5
,

a

r
e
cently
release
d

vide
o

game
.

I
t

wil
l

brin
g

y
o
u

a

lar
g
e

benefit
.

An
d

y
o
u

m
i
gh
t

h
a
v
e

al
m
o
s
t

n
o

i
n
teres
t

i
n

a

Y
o

Y
o

M
a

C
D

o
f

Vi
v
a
l
d
i
'
s

ce
l
l
o

con
c
ertos
.

I
t

wil
l

brin
g

y
o
u

a

s
m
a
l
l

b
e
n
e
f
i
t
.
E
c
ono
m
i
s
t
s

m
ea
s
ur
e

m
easure
s

the
s
e

t
r
ade
s

off’
s

b
y
c
o
m
p
arin
g

w
h
a
t

y
o
u

giv
e

u
p

t
o

ge
t

it
.

Yo
u

ca
n

bu
y

CD
s

o
r

m
agazines
.

Th
e

m
agazin
e
s

tha
t

y
o
u

ar
e

will
i
n
g

t
o

g
i
v
e

u
p

t
o

g
e
t

a
C
D

m
eas
u
r
e

t
h
e

benefi
t

t
h
a
t

y
o
u

g
et

fr
o
m a

C
D.



O
n

th
e

Margin

Ma
r
g
i
n

m
ea
n
s

"
bo
rder
"

o
r

"ed
g
e.
"

S
o

y
o
u

ca
n

thi
n
k

o
f

a

choic
e

o
n

t
h
e

m
a
r
g
in

a
s

on
e

tha
t

a
d
j
u
s
t
s

t
h
e

bo
r
d
e
r
s

o
r

edge
s

o
f

a

pla
n

t
o

de
te
rm
in
e

t
h
e

b
e
s
t

c
o
u
r
s
e

o
f

a
c
t
i
on
.

M
a
k
i
n
g a
choice on

t
h
e

ma
r
g
in
m
eans

co
m
p
aring

a
ll

t
h
e

r
el
e
v
a
n
t alte
r
n
a
t
i
v
e
s

syste
m
ati
c
a
l
l
y

a
n
d

i
n
c
r
e
m
ent
a
lly.



For

exa
m
ple,

y
ou

m
u
st

ch
o
o
se

h
o
w

to

di
vi
d
e

t
h
e

n
ext

h
o
ur

betw
e
en

stud
yi
ng

a
n
d

e
-
m
ailing

yo
u
r

friends.

T
o

m
ake

this

ch
oi
c
e,

y
ou

m
us
t

e
v
a
l
u
ate

t
h
e

c
o
s
ts

a
n
d

b
e
n
e
f
it
s

o
f
th
e
alternativ
e

possibl
e

allocation
s

o
f

y
ou
r

ne
x
t

hour
.

Yo
u

c
h
oos
e

o
n

t
h
e

m
ar
g
in

b
y

c
on
si
d
eri
n
g

w
h
e
t
h
e
r

y
o
u

wi
l
l

b
e

b
e
t
ter

o
ff

o
r

w
o
rse

o
ff

if

you

s
p
e
n
d

an

ex
t
r
a

f
e
w

m
in
ut
e
s

s
t
u
d
y
i
n
g
o
r

a
n

ex
t
r
a

fe
w

m
in
ut
e
s

e
-
m
ail
in
g
.

T
h
e

m
a
rgi
n

m
ig
h
t

involv
e

a

s
m
al
l

change
,

a
s

i
t

doe
s

whe
n

y
o
u
'
r
e

decidin
g

ho
w

t
o

di
v
id
e

a
n

h
o
u
r

bet
w
e
e
n

stud
y
i
n
g

an
d

e
-
m
a
ilin
g

friends
.

O
r

i
t

m
igh
t

i
nv
o
l
v
e

a

l
a
r
g
e
chang
e,

a
s

it

does
,

fo
r

ex
a
m
ple
,

wh
en

y
ou
'
r
e

de
c
i
d
i
n
g

wh
e
t
he
r

to

re
m
a
i
n

i
n

sc
h
oo
l

f
o
r

a
n
othe
r

y
ear
.

Atten
d
in
g

sch
o
o
l

f
o
r

par
t

o
f

th
e

yea
r

i
s

n
o

bette
r

(an
d

m
i
gh
t

b
e

w
orse
)

th
a
n
not

at
t
e
n
d
i
ng

at

a
l
l.

So

yo
u

li
k
ely

will

w
a
nt

t
o

c
o
m
m
i
t

t
h
e

ent
i
r
e

ye
a
r

t
o

s
cho
o
l

o
r

t
o

s
o
m
e
t
h
in
g

e
l
s
e
.

Bu
t

y
o
u

s
t
il
l

c
h
oos
e

o
n

t
h
e

m
argin
.

I
t

i
s

jus
t

tha
t

t
h
e

m
a
rgina
l

ch
an
g
e

i
s

now
a

chang
e

fo
r

on
e

yea
r

rathe
r

tha
n

a

c
h
a
ng
e

f
o
r

a

f
e
w

m
i
n
u
t
e
s
.


Margina
l

Cost

The

oppor
t
u
n
i
ty

cost

of

a

one
-
unit

i
n
cre
a
se

in

an

a
c
t
iv
i
ty

is

ca
l
l
e
d

m
a
rginal

cost.
Marg
i
n
a
l

co
s
t

is

what

you

m
u
st

g
i
v
e

u
p

t
o

g
e
t

o
n
e

m
o
re

u
n
i
t

o
f

so
m
e
t
h
i
n
g
.

T
hi
n
k

abo
u
t

y
ou
r
m
a
rgina
l

cos
t

o
f

go
i
n
g

to

t
h
e

m
ov
i
e
s

fo
r

a

thir
d

ti
m
e

i
n

a

we
e
k
.

Y
ou
r

m
a
rgina
l

cos
t

i
s

wha
t

yo
u

m
u
s
t

g
i
v
e

u
p

to

se
e

tha
t

on
e

ad
diti
o
na
l

m
o
vie
.

I
t

i
s
n
o
t

w
ha
t

yo
u

g
i
v
e

u
p

t
o

s
e
e

a
ll
th
r
e
e

m
ovies
.

Th
e

r
e
as
o
n

i
s
t
h
a
t

yo
u
'
v
e

a
l
r
e
a
d
y

g
i
v
en

u
p

s
o
m
et
hi
n
g

fo
r

t
w
o

m
ov
i
e
s
,

s
o

y
o
u

do
n
'
t

c
oun
t

th
i
s

c
o
s
t

a
s

res
u
lti
n
g

f
r
o
m

th
e

d
e
c
is
i
o
n

to

s
e
e

t
h
e

t
hi
rd

m
ov
i
e.


Th
e

m
a
r
gi
n
a
l

co
s
t

o
f

a
n
y

a
ct
ivit
y

in
c
r
ease
s

a
s

y
o
u

d
o
m
or
e

o
f

i
t
.

Y
o
u

k
n
o
w

tha
t

go
in
g

t
o

t
h
e

m
o
vie
s

d
ecrease
s

you
r

st
ud
y

ti
me

an
d

l
o
w
e
r
s

you
r

g
rade
.

Supp
o
s
e

tha
t

seei
n
g

a

sec
o
n
d
m
ovi
e

i
n

a

we
e
k

lo
w
e
r
s

y
o
u
r

g
r
ad
e

b
y

f
i
v
e

pe
r
cen
t
ag
e

p
oints
.

S
e
e
i
n
g

a

thir
d

m
ovi
e

wil
l

lo
w
e
r

you
r

gr
a
d
e

b
y

m
o
r
e

t
h
an

f
i
v
e

pe
r
c
e
n
t
ag
e

points
.

Y
ou
r

m
a
rgin
a
l

cos
t

o
f

m
ovi
e

go
i
n
g
is increas
i
n
g.


Margina
l

Benefit

T
h
e

ben
e
fi
t

o
f

a

on
e
-
uni
t

in
c
r
e
a
s
e

i
n

a
n

ac
t
ivi
t
y

i
s

calle
d

marg
i
n
a
l

b
e
n
e
f
i
t
.

Mar
g
in
a
l

b
e
nef
i
t

i
s

w
ha
t

y
o
u

ga
i
n

w
he
n

y
o
u

ge
t

on
e

m
o
r
e

u
n
i
t

o
f

s
o
m
e
thi
n
g
.

Bu
t

t
h
e

m
a
rgi
n
a
l

be
n
efi
t
o
f

s
o
m
et
hi
n
g

i
s

measure
d

b
y

w
h
a
t

yo
u

a
r
e

w
il
l
in
g

t
o

g
iv
e

u
p

t
o

ge
t

t
h
a
t

o
n
e

additiona
l

unit.


A

fun
d
a
m
ent
al

fe
a
tu
re

o
f

m
ar
g
i
n
a
l

b
e
ne
fit

i
s

t
h
a
t

i
t

di
minishes
.

Thin
k

a
b
ou
t

y
ou
r

ma
rgi
n
al

b
e
nef
i
t

fr
o
m

m
ovies.

If

y
ou
'
ve

b
ee
n

s
t
ud
yi
n
g

ha
r
d

a
n
d

h
av
e
n
'
t

seen

a

m
ovi
e

thi
s
w
eek
,
y
ou
r

m
argina
l

benefi
t

fr
o
m

seein
g

y
ou
r

ne
x
t

m
ovi
e

i
s

lar
g
e
.

Bu
t

i
f

yo
u
'
v
e

b
e
e
n

o
n

a

m
o
v
i
e

b
i
n
g
e

t
h
is

w
e
e
k
,

yo
u

n
o
w

w
a
n
t

a

b
re
a
k
a
n
d

yo
u
r

marg
i
na
l
b
e
ne
f
it
i
s

s
m
all.

Be
ca
u
s
e

t
h
e

m
a
r
gi
n
a
l

b
e
n
e
f
i
t

o
f

a

m
ov
ie

d
ec
r
ea
s
e
s

as

y
o
u

s
e
e

m
o
r
e

m
ov
i
e
s
,

yo
u

ar
e

willin
g

t
o

giv
e

u
p

les
s

t
o

se
e

on
e

m
or
e

m
ovi
e
.

F
o
r

exa
m
ple
,

y
o
u

kno
w

tha
t

goin
g

t
o

th
e
m
ov
ie
s

decrease
s

y
ou
r

stu
d
y

ti
m
e

a
n
d

l
o
w
e
r
s

y
o
u
r

g
ra
d
e
.

Y
o
u

p
a
y

fo
r

se
e
i
n
g

a

m
o
v
i
e

w
ith

a

l
ow
e
r

gr
a
de
.

Y
o
u

m
ig
h
t

b
e

w
i
l
l
i
n
g

to
giv
e

u
p

te
n

per
ce
n
t
a
g
e

p
o
int
s
t
o

s
e
e

y
ou
r
f
i
r
st
m
ovi
e

i
n

a

week
.

Bu
t

yo
u

won
'
t

b
e

willin
g

t
o

tak
e

s
u
c
h

a

bi
g

h
i
t

o
n

y
ou
r

g
r
ad
e

t
o

s
e
e

a

s
econ
d

m
ovi
e

i
n

a

w
eek
.

You
r

w
illingne
s
s

t

pa
y

t
o

se
e

a

m
ovi
e

i
s

decreasing.


Makin
g

a

R
a
tiona
l

Choice

So

will

y
ou

g
o

to

t
h
e

m
ovies

for

that

t
h
ird

ti
m
e

in

a

wee
k
?

If

t
h
e

m
a
rgin
a
l

co
s
t:

le
ss

than

the

m
a
rgin
a
l

b
e
nef
i
t,

y
our

rati
o
nal

choice

w
i
ll

be

to

see

t
h
e

t
h
i
rd

m
ovie

If

the

m
arginal
cost ex
c
e
e
d
s

t
h
e

m
arginal
b
enef
i
t,

yo
u
r

rati
o
nal c
h
o
i
ce will

b
e

to
s
p
en
d

th
e

eve
n
in
g

stu
d
y
ing
.

W
e

m
a
k
e

a

r
a
t
iona
l

choic
e

an
d

u
s
e

ou
r

s
car
e

re
s
ou
r
ce
s

in

t
h
e

w
a
y

t
h
at

m
ake
s

u
s

as
wel
l

o
f
f

a
s

possibl
e

whe
n

we

ta
k
e

t
ho
se

a
c
t
i
on
s

fo
r

w
h
i
ch

m
a
rgina
l
b
e
nef
i
t

e
xc
e
ed
s

o
r

e
qu
a
l
s

m
a
rgi
n
a
l
cos
t
.


Respon
d
in
g

t
o

Incenti
v
e
s


Th
e

choice
s
w
e

m
ak
e

depen
d

o
n

t
h
e

incentive
s

w
e

face
.

A
n
incentiv
e

i
s

a
rewar
d

o
r

a

p
e
n
a
lt
y

a

"
ca
rro
t
"

o
r

a

"s
ti
c
k
"

t
h
at

e
n
c
ou
r
a
g
e
s

o
r

di
s
c
o
u
r
a
ge
s

a
n

a
c
t
i
o
n

we

respond
positi
v
el
y
t
o

"carrots
"

an
d

n
egati
v
el
y
t
o

"sticks.
"

Th
e

ca
r
rot
s

tha
t
w
e

fa
ce

are

m
a
r
g
i
n
al

b
e
n
e
f
its.

Th
e

s
t
i
c
k
s

are

m
a
r
g
i
n
al

c
o
s
ts.

A

c
h
a
ng
e

i
n

m
a
r
g
i
n
al

ben
e
fi
t

o
r

a

cha
n
g
e
i
n

m
arginal
cos
t

bring
s

a

c
hang
e

i
n

t
h
e

incentive
s

tha
t

w
e

fac
e

a
n
d l
e
a
d
s
u
s

t
o

c
h
a
n
g
e
ou
r
a
ct
i
on
s
.



Mos
t

student
s

believ
e

tha
t

th
e

pa
y
of
f

fr
o
m

stu
d
y
in
g

jus
t

bef
o
r
e

a

tes
t

i
s

g
reater t
ha
n

t
h
e

p
a
y
o
ff fr
o
m

st
ud
y
i
n
g

a

m
on
th

b
ef
o
re

a tes
t
. In

oth
e
r words, as a
t
es
t

d
at
e

a
p
p
ro
aches
,

th
e
m
a
r
gina
l

b
en
ef
i
t

o
f

stud
y
in
g

inc
r
ease
s

a
n
d

th
e

inc
e
nti
v
e

to

st
u
d
y

bec
om
es

stronger.

For

this

reas
o
n
,

we

obser
v
e

an

increa
s
e

i
n

study

ti
m
e

a
nd

a

d
e
crease

in

l
e
isure

pur
s
u
its

during
the

last few

d
ay
s before

a te
s
t.

A
n
d

t
h
e

m
o
re

i
m
portant

t
h
e

te
s
t,

t
h
e gre
a
ter

is

this

eff
e
ct.


A

change

in

m
arginal

cost

ch
a
n
ges

i
n
c
e
nt
i
v
es.

F
o
r

e
x
a
m
ple,

s
u
p
po
se

t
h
at

last

w
eek,

y
ou

f
o
un
d

y
our

c
ourse

w
o
rk

easy

a
nd

s
c
or
e
d

10
0

p
erce
n
t

on

y
our

pra
c
ti
c
e

q
u
iz
z
es
.

T
h
e
m
a
r
gi
na
l

c
o
s
t

o
f

ta
k
in
g

a
n

ev
e
nin
g

o
f
f

t
o

e
nj
o
y

a

m
ov
i
e

wa
s

lo
w
.

Yo
u
r

grad
e

o
n

thi
s

w
e
ek
'
s

tes
t

wil
l

no
t

suffer
,

s
o

yo
u

h
a
v
e

a

m
o
v
i
e

f
east
.

Bu
t

t
h
i
s

w
ee
k

th
e

goin
g

ha
s

g
o
tte
n

tough
.

You
a
r
e
ju
s
t
no
t

g
e
t
tin
g

it
,

an
d
y
o
u
r

p
r
ac
t
ic
e
te
s
t
s
c
o
r
e
s

ar
e

low
.

I
f

y
o
u

tak
e

of
f

eve
n

on
e

e
veni
n
g
,

y
ou
r

grad
e

o
n

n
e
x
t

wee
k
'
s

te
s
t

wi
ll

suffer
.

Th
e

m
a
rgina
l

cos
t

o
f

seein
g

a

m
ovi
e

i
s

h
i
gher
thi
s

w
ee
k

th
a
n

i
t

w
a
s

la
s
t

w
ee
k

so

y
o
u

d
e
c
i
d
e

to

g
i
v
e

t
h
e

m
ov
ies

a

m
iss.

A
centra
l
ide
a
o
f
ec
o
n
o
m
ic
s
i
s
tha
t
b
y
o
b
servin
g

chan
g
e
s
i
n
incentives
,
w
e

c
a
n
p
r
edic
t

ho
w
choice
s

w
i
ll
change.


Factor
s

O
f

Productio
n

Th
e

reaso
n

p
e
opl
e

canno
t

satisf
y

al
l

t
h
eir
wa
n
t
s

a
n
d

n
e
e
d
s

i
s

t
h
e

scarcit
y
o
f

p
r
od
u
cti
v
e

resources
.

T
hes
e
r
e
sources
,

o
r

f
a
ctor
s

of
p
r
o
d
u
c
t
i
on
,

a
r
e

l
a
n
d
,

capital
,

labor
,

an
d

ent
r
ep
r
eneu
rs
hip
.

The
y

provid
e

th
e

me
an
s

f
o
r

a
s
o
ciet
y

t
o

p
r
odu
c
e

a
n
d

d
i
stri
bu
t
e

it
s

goods

and

services.

2



Land
-

I
n

econ
o
m
ics
,

l
an
d

refer
s

t
o

th
e

"gift
s

o
f

nat
u
re,
"

o
r

n
a
tu
r
a
l

re
s
o
urce
s

n
o
t
crea
t
e
d

b
y

h
u
m
a
n

ef
f
o
r
t
.

"Land
"

include
s

deserts
,

fertil
e

f
i
elds
,

fores
t
s
,

minera
l

d
e
po
s
i
t
s
,
c
a
tt
l
e
,

w
h
a
le
s
,

suns
h
ine
,

an
d

t
h
e

cl
i
ma
t
e

n
e
c
es
s
ary

to

g
r
o
w

cr
o
p
s.

Becaus
e

onl
y

s
o

m
an
y

n
a
tura
l

resour
c
e
s

ar
e

avail
a
bl
e

a
t

a
n
y

giv
e
n

t
i
m
e
,

e
c
on
o
m
i
s
t
s
t
e
n
d

t
o

t
h
in
k

o
f

la
n
d

a
s

b
ei
n
g

fi
x
e
d
,

o
r

i
n

limite
d

s
u
p
p
l
y
.

N
o
t

e
n
ou
g
h

g
ood

farmland

exists to

feed

all

of

the

eart
h
'
s

popula
t
i
on
,

no
r
e
n
oug
h

sand
y

b
eache
s

fo
r

e
v
er
y
on
e

to
enjo
y
,

no
r

enoug
h

m
i
n
e
ral
s
t
o

mee
t

ou
r

ex
p
a
ndin
g
energ
y

need
s

i
ndefinitel
y
.



Labor
-

A

t
hi
r
d
fact
o
r

o
f

p
r
o
du
c
t
i
o
n

i
s

l
a
bo
r

p
eo
pl
e

w
i
t
h

a
ll

t
hei
r

ef
f
o
rts
,

a
b
ili
t
ies
,

an
d s
k
ills
.

Thi
s

ca
t
ego
ry

in
c
lude
s

al
l

p
e
opl
e

e
xcep
t

f
o
r a

u
n
iqu
e

g
r
ou
p

o
f

i
nd
i
vidua
l
s

c
a
l
le
d

en
t
re
p
re
ne
urs
,

whic
h

w
e

singl
e

ou
t

b
e
c
a
u
s
e

o
f

t
h
e
i
r

s
pe
c
i
a
l

r
ol
e

i
n

th
e

e
c
on
o
m
y
.

U
nli
k
e

l
a
nd
,

l
a
b
o
r

i
s

a

r
e
s
ou
r
c
e

t
h
a
t

ma
y

v
a
r
y

i
n

siz
e

ove
r

time
.

Historicall
y
,
factor
s

suc
h

a
s

populatio
n

g
r
ow
t
h
,

i
m
m
igrati
o
n
,

tu
r
n
ov
e
r
,

w
a
r
,

a
n
d

disea
s
e

h
a
v
e

h
ad

a
dra
m
ati
c

i
m
pac
t

o
n
b
o
t
h

th
e
quanti
ty

an
d
q
u
a
l
i
t
y

o
f

l
a
b
or
.


Cap
i
ta
l
-

A
no
t
h
e
r

fac
t
o
r

o
f

pro
du
ct
i
o
n

i
s

ca
p
ita
l

t
h
e

to
o
ls
,

equipment
,
a
n
d

factorie
s

u
se
d

i
n

th
e

productio
n
o
f

goods

and

services.

Such

ite
m
s

also

are

called

capital
g
o
od
s

t
o

d
is
t
i
n
g
u
is
h

t
h
e
m

fr
o
m

fi
n
a
n
c
ia
l

ca
p
ita
l
,

t
h
e

m
on
e
y

u
s
e
d

t
o

b
u
y

th
e

too
l
s

an
d

e
q
u
i
p
m
en
t

u
s
e
d

i
n

p
roduction.

C
ap
it
a
l

i
s

u
niq
u
e

i
n

t
h
a
t

i
t

i
s

t
h
e

r
e
s
u
l
t

o
f

p
r
od
u
c
tion
.

A

bulldozer
,

fo
r

exa
m
ple
,

i
s

a

capita
l
goo
d

use
d

i
n

c
on
s
tr
u
c
tion
.

I
t

w
a
s

b
u
il
t

i
n

a

f
a
c
tor
y
,

howe
v
e
r
,

w
h
i
c
h

m
a
kes
i
t

t
h
e

re
s
u
l
t

o
f

ear
li
e
r

prod
u
c
t
i
o
n
.

L
i
k
e

th
e

bulld
o
z
er
,

th
e

cas
h

re
g
iste
r

i
n

a

neighborhoo
d

s
t
or
e

i
s

a

c
a
p
i
ta
l

g
o
od
.

I
t
,

to
o
,

i
s

t
h
e

r
e
s
u
l
t

o
f

ea
r
l
ie
r

pr
o
duct
i
o
n a
n
d

i
s

used

f
o
r

t
h
e

rec
o
rd

k
ee
p
i
n
g

ass
o
ciated

with

t
h
e

sale

of

goo
d
s

and

services.

E
n
tr
e
p
re
n
e
u
r
s
-

S
o
m
e

w
o
r
k
e
r
s

h
a
v
e

a

s
p
e
c
i
a
l

s
t
a
t
u
s

b
e
caus
e

t
h
e
y

a
r
e

th
e

innovators

responsible

for

m
u
ch

of

the

change

in

our

econo
m
y
.

These

people

are

cal
l
ed
e
n
tre
p
re
n
e
u
r
s
.

A
n

entrep
re
neu
r

i
s

a

risk
-
take
r

i
n

s
e
ar
ch

o
f

profits.

Entrepreneurs

often

are

thought

of

as

t
h
e

drivi
n
g

for
c
e

i
n

th
e

A
m
e
r
ic
a
n

ec
o
no
m
y

b
e
c
a
us
e

th
e
y

e
xhib
i
t

a

kn
a
ck

f
o
r

s
t
ar
t
i
n
g

a

n
e
w

bu
s
in
es
s

o
r

br
i
n
g
i
n
g

n
e
w

products

to
market.

Their

initiative

co
m
b
ines

the

r
e
s
ou
r
ce
s

o
f

land
,

labor
,

an
d

capita
l

int
o

ne
w

products
.


DI
D

YO
U
K
NOW
?

Shellin
g

O
ut

I
n

colonia
l

tim
e
s
,

mon
ey

w
as

i
n

s
hor
t

su
pp
l
y
.

Be
caus
e

o
f

th
is
,

p
e
opl
e

o
ft
e
n

u
se
d

shelle
d

cor
n

t
o

p
ay

f
o
r

good
s

a
nd

ser
vic
e
s
,
the

p
r
a
c
ti
c
e

h
a
s

n
o
t

surviv
e
d

t
h
e

cen
t
u
ri
e
s
,

b
u
t

t
h
e

s
l
a
n
g

e
x
p
r
e
s
s
i
o
n

s
h
ell

o
u
t
-
meani
n
g

p
a
y

for

h
as
.

C
h
ec
k
in
g

U
n
derst
a
nding

LAN
D

include
s

t
h
e

"gift
s

o
f

n
a
t
ur
e,
"

o
r

n
a
t
u
r
a
l

r
es
o
u
r
c
e
s

'

n
o
t

c
r
e
a
t
e
d

b
y

h
uma
n

e
f
f
o
r
t
.


CAPI
T
A
L

include
s

th
e

tool
s
,

equipment
,

a
n
d

fa
c
t
o
r
i
e
s

u
s
e
d

i
n

p
r
od
u
cti
o
n
.

C
a
p
ita
l

i
s

un
i
qu
e

i
n

tha
t

i
t

i
s

th
e

r
e
s
ul
t
o
f

produ
c
ti
on
.


LABO
R

i
n
clu
d
e
s

peopl
e

w
it
h

a
l
l

the
i
r

ef
f
o
r
t
s

an
d

a
bi
l
it
ie
s
,

ex
cludin
g

thos
e

individual
s

wit
h

uniqu
e
entrepreneuria
l

abi
l
i
t
ie
s
.




Explain.

1
.

Wh
y

i
s

ther
e

n
o

suc
h

t
h
i
n
g

a
s

a

"
free
"

l
u
nch?

2
.

Wha
t

ar
e

th
e

fou
r

f
act
o
r
s

o
f

production?

ENTRE
P
R
E
NEUR
S

inclu
d
e

th
o
s
e

u
n
i
q
u
e

risk
-
t
ak
i
n
g

i
n
d
i
v
i
d
ua
l
s

w
h
o

hav
e

t
h
e

a
b
ilit
y

t
o

s
t
a
r
t

a

n
e
w
b
u
si
n
e
s
s

o
r

bri
n
g

a

pr
od
u
c
t

t
o

m
a
rket
.

3.

T
h
e

p
r
o
d
u
c
t
i
v
e

re
s
ource
s

i
n

a
m
ode
m

eco
n
o
my

i
n
clud
e

LA
N
D
,

CAPI
T
AL
,

L
A
BOR
,

a
n
d

E
N
T
R
EPRENEU
R
I
A
L
A
B
I
L
I
T
Y
.

Al
l

fo
u
r

f
a
c
t
or
s

o
f

p
r
o
du
c
t
i
o
n

a
r
e

neces
s
a
r
y

f
o
r

pro
d
u
c
t
i
o
n

t
o

t
a
k
e

p
l
a
ce
.

Wha
t

fou
r

factor
s

of p
r
o
d
uc
ti
o
n

ar
e
necessar
y

t
o
brin
g

jewelr
y

t
o

cons
u
mers?

4.

Explai
n

th
e

cor
e

idea
s

tha
t

defin
e

th
e

economi
c

wa
y

o
f

thinking.

Practic
e

Problem
s

1.2

1
.

Ev
e
r
y
w
e
ek
,

K
a
t
e

pl
a
y
s

ten
n
i
s

f
o
r

tw
o

ho
u
rs
,

a
n
d

h
e
r
g
r
a
d
e

o
n

ea
ch

ma
th

tes
t

i
s

7
0

percent
.

Las
t

week
,

afte
r

playin
g

fo
r

tw
o

hou
rs
,

K
a
t
e

c
o
nsid
e
re
d

p
l
a
y
in
g

f
o
r

ano
t
h
e
r

hour
.

S
h
e

d
e
c
i
de
d

to
p
l
a
y

f
o
r

an
o
the
r

h
o
u
r

an
d

c
u
t

h
e
r

stu
d
y

tim
e

b
y

o
n
e

ho
u
r
.

B
u
t

l
a
s
t

we
e
k
,

h
e
r

m
a
t
h

g
r
a
d
e

f
e
l
l

t
o
6
0

p
e
rcent.

a
.


Wha
t

w
a
s

Ka
t
e'
s

op
p
ortun
i
t
y

cos
t

o
f

t
h
e

thi
rd

hou
r

o
f

t
enni
s?

b
.


Give
n

tha
t
Kat
e

pla
y
e
d

th
e
thir
d
hour
,
wha
t

ca
n
yo
u
conclud
e

abou
t

he
r

m
a
r
g
i
n
a
l

be
ne
f
i
t

a
n
d

m
a
r
g
i
na
l

c
os
t

o
f
t
h
e

s
e
c
on
d

h
o
u
r

o
f

t
enni
s?

c
.


W
a
s

K
a
t
e
'
s

decisi
o
n

t
o

p
l
a
y

t
h
e

thir
d

h
o
u
r

o
f

te
n
ni
s

r
a
tional?

d
.


Did

K
a
te

m
a
ke

h
e
r

decision

on

t
h
e

m
a
r
g
in?



Exercise
s

1.2

1.

B
il
l

G
ate
s

give
s

a
w
a
y

m
i
llion
s

o
f

dollar
s

a

yea
r

t
o

universities
,

cance
r

rese
a
rch
,

a

children'
s

hospital
,

an
d

th
e

Se
a
ttl
e

S
y
m
p
h
ony
.

Ar
e

hi
s

donations
rational
?

I
n

m
akin
g

thes
e

donations
,

m
igh
t

Bil
l

Gate
s

hav
e

r
e
sponde
d

t
o

an
y

incentive
?

Doe
s

h
e
m
a
k
e

hi
s

decisio
n

abou
t

hi
s

don
a
tion
s

o
n

th
e

m
argin?

2.

Chec
k

th
e

loca
l

m
e
di
a

an
d

fin
d

thre
e

exa
m
ple
s

of:

a
.

Macroeconomi
c

issue
s

a
n
d

microe
co
no
m
i
c

issues
b
.

Positive

st
at
e
m
ents

c
.

Nor
m
ativ
e

s
t
ate
m
ents

d
.

Econo
m
ic
s

a
s

a

polic
y

tool



3
.

Ton
y

i
s

a
n

e
ngineerin
g

s
t
udent
,

wh
o

i
s

cons
i
derin
g

takin
g

a
n

e
xtr
a

cour
s
e

i
n

h
ist
o
r
y
.

Wha
t

thing
s

migh
t

b
e

par
t

o
f

hi
s

cost
s

a
n
d

benefit
s

o
f

th
e

histo
ry
course
?

Thin
k

o
f

a
n

incentiv
e

tha
t

m
i
gh
t

encourag
e

.h
i
m

t
o

tak
e

th
e

course.
Yo
u

Don'
t

Ha
v
e

t
o

Sp
e
n
d

a

Buc
k

t
o

Hav
e

a

Cos
t

Last

Friday

ni
g
h
t

y
o
u

decided

to

s
t
ay

h
o
m
e

and

watch

television

instead

of

going

to
the

m
ovies

with

y
o
ur

frie
n
ds.

Did

this

d
ecision

invo
l
ve

any

cos
t
?

Yes,

because

even

tho
u
gh

you

didn
'
t

spend

a

buck,

t
h
ere

was

a
n

opportunity

cos
t
,

which

represents

the
best

alternat
iv
e

that

y
o
u

did

not

choose,

such

as

w
o
rki
n
g

o
r

p
ar
ti
cipa
ti
n
g

i
n

a
n
ot
h
e
r

ac
t
i
v
it
y
.

Whenever

consumers,

producers

and

governments

make

choices,

th
ey

base

their

decisions

on

the

c
o
s
t
s

inv
o
lv
e
d
.

I
n

ec
on
o
m
ic
s
,

c
o
st
s

i
n
clu
d
e

no
t

onl
y

th
e

out
-
of
-
p
ocket
expe
ns
e
s

y
ou'
d

t
y
picall
y

consi
d
e
r

calle
d

ex
p
l
i
ci
t

c
o
s
t
s
,

bu
t

a
l
s
o

i
m
pli
c
i
t

c
o
s
t
s
,

wh
ic
h

me
a
s
u
r
e

th
e

val
u
e

o
f

r
e
s
o
ur
c
e
s

t
h
a
t

co
u
l
d

ha
v
e

b
ee
n

us
e
d

el
s
e
wher
e
.

For

instance,

if

y
ou

decide

to

go

t
o

the

m
ovies,

y
our

e
xplicit

costs

may

include

t
h
e

ticket,

po
p
corn

and

sod
a
.

Additional
ly
,

y
ou

would

include

the

implicit

costs,

such

as

the
pay

you

wou
l
d

have

earned

h
a
d
y
o
u

w
o
r
k
e
d

d
u
ri
n
g

th
e

tun
e
r
e
quire
d

t
o

g
o

t
o

th
e

m
ovies
.

E
c
ono
m
ist
s

r
e
f
e
r

t
o

thes
e

co
m
b
ine
d

c
o
st
s

a
s

oppo
r
tuni
ty

costs.

Whe
n

yo
u

bas
e

decision
s

o
n

e
xp
l
ici
t

c
ost
s

on
l
y
,

yo
u

ca
n m
easur
e

t
he
n
u
m
b
e
r

o
f

dollar
s

co
m
in
g

in
to

you
r

walle
t

versu
s

th
e
n
u
m
b
e
r

f
l
owin
g

o
u
t
.

B
u
t
rat
i
ona
l

p
e
ople
conside
r

m
o
r
e

tha
n

invoi
c
e
s

an
d
rec
e
i
p
t
s

w
h
e
n

t
h
e
y
c
o
m
p
ar
e

m
ar
g
i
na
l

b
e
nefit
s

wit
h

m
argina
l

co
s
t
s
.

E
x
tr
a
b
e
n
ef
i
t
s

an
d

e
xt
r
a
c
o
s
t
s

includ
e

i
m
pl
i
ci
t

costs
;

so
making
decision
s

b
y
merel
y

c
ons
i
d
erin
g

t
h
e
f
l
o
w

o
f

f
u
nd
s

i
nt
o
an
d

ou
t

o
f

you
r

walle
t

w
il
l
lea
d

t
o

de
c
ision
s

tha
t

fa
il
t
o

m
ax
i
m
iz
e

y
ou
r

satisfa
c
tion.


EXERCISE 1.3

1.

For

e
a
ch

o
f

t
h
e

f
o
ll
o
wi
n
g

situati
o
ns,

l
ist

at

least

two

ex
p
licit

c
o
sts

an
d

two

i
m
p
licit

c
o
sts.

Pla
c
e

t
h
e
m
i
n

t
h
e

c
o
rrec
t

co
l
u
m
n.

(
A
)

Y
o
u

de
c
id
e

t
o

g
o

t
o

c
o
ll
e
g
e
.

(B
)

Yo
u

tak
e

a

jo
b

afte
r

school
.

(C
)

You

study

for

and

t
a
ke

an

AP

E
c
o
no
m
i
c
s

E
x
a
m
in
a
ti
on
.

(
D
)

A

s
t
a
y
-
at
-
ho
m
e

da
d

return
s

t
o

w
o
rk
.

Million
-
Dollar Murray

by Malc
o
l
m

Gladwell A
r
ti
c
les
from

the New Yorker February 13, 2006

Why

problems

like

ho
m
elessne
s
s

m
a
y

be

easier

to

solve

th
a
n

to

m
a
nag
e
.


1.

Murray

Barr

was

a

b
e
ar

of

a

ma
n
,

an

e
x
-
marine,

six

feet

ta
l
l

and

heav
y
s
et,

a
n
d

wh
e
n

he

fell

d
o
wn

which

he

did

near
l
y

every

d
ay

it

could

take

two

or
three

grown

men

to

pick

him

up.

He

had

straight

black

hair

and

olive

skin.

On

the

st
r
eet,

they

called

him

Smokey.

He

was

missing

m
o
st

of

his

t
ee
t
h.

He had

a

wonderful

smile.

People

lov
e
d

Mu
r
ray.


His

chosen

drink

was

vodka.

Beer

he

called

"horse

piss."

On

the

stre
e
ts

o
f

downtown

Reno,

whe
r
e

he

lived,

h
e

could

buy

a

two
-
h
u
ndred
-
and
-
fifty
-
mill
i
litre
bottle

of

cheap

vodka

for

a

dollar
-
fi
f
ty.

If

he

was

flush,

he

could

go

for

the

seven
-
hundred
-
and
-
fifty
-
milli
l
itre

bottle,

and

i
f

he

w
a
s

broke

he

could

always

do

what

ma
ny

of

the

ot
her

homele
s
s

people

of

Reno

did,

which

is

to

walk

through

the

casinos

and

finish

off

the

half
-
empty

glas
s
es

of

liquor

left

at

the
gaming

tables.


"If

he

w
a
s

o
n

a

runner,

we

could

pick

him

up

several

times

a

d
a
y,"

Pat
r
ick

O'Bryan,

who

is

a

bicycle

cop

in downtown

Reno,

said.

"
And

he's

g
o
ne

on

so
m
e
amazing

runners.

He

would

get

picked

up,

get

detoxed,

then

get

back

o
ut

a

couple

of

hours

later

and

start

u
p

again.

A

lot

of

t
h
e

g
u
ys

on

the

st
r
eets

who've
been

drinking,

they

get

so

angry.

They

are

so

in
c
redibly

abrasive,

so

violent,

so

abusive.

Mur
r
ay

was

such

a

c
haracter

and

had

such

a

great

se
n
s
e

of

humor
that

w
e

so
m
ehow

got

p
a
st

t
h
at.

Even

when

he

w
a
s

abusive,

we'd

say,

'
M
urray,

you

kn
ow

you

love

us,'

and

he'd

say,

'I

k
n
o
w

and

go

back

to

sw
e
a
ring

at
us."


"I've

been

a

police

offic
e
r

for

fifteen

years,"

O'Bryan's

partn
e
r,

Steve

Johns,

said.

"I

picked

up

Murray

my

wh
o
le

career.

Literally."


Johns

and

O
'Bryan

pleaded

with

Murray

to

quit

drinking.

A

few

yea
r
s

ago,

he

w
a
s

assigned

to

a

treatm
e
n
t

program

in

which

he

w
a
s

under

the

equ
i
valent
of

house

arrest,

a
n
d

he

t
h
rived.

He

got

a

job

and

worked

hard.

B
u
t

then

the

program

ended.

"On
c
e

he

graduated

out,

he

had

no

o
n
e

to

report

to,

and

he
needed

that,"

O'Bryan

said.

"I

don't

know

whether

it

was

his

military

ba
c
kground.

I

suspect

that

i
t

was.

He

was

a

good

cook.

O
n
e

time,

he

accu
m
ulated
savings

of

over

six

thousand

dollars.

Showed

up

for

work

relig
i
ously.

Did

everything

he

w
a
s

s
u
pposed

to

d
o.

They

sai
d
,

'Congratulations,'

a
n
d

put

him
back

on

the

street.

He

s
p
ent

that

six

t
h
ousand

in

a

week

or

s
o
."


Often,

he

w
a
s

too

intoxicated

for

the

drunk

tank

at

the

jail,

and

he'd

get

sent

to

the

e
m
ergency

room

at

either

Saint

Mary's

or

Washoe

Medical

Center.

Marla

Johns,

who

w
a
s

a

social

worker

in

the

em
e
rgency

room

at

Saint

Mary's,

saw

him

several

times

a

w
ee
k.

"The

am
b
ulance

would

bring

him

in.

We

would
sober

him

up,

so

he

would

be

sober

enough

to

go

to

j
a
il.

And

we

would

call

t
h
e

police

to

pick

him

up.

In

fact,

tha
t
's

how

I

m
et

my

husba
n
d."

Marla

Johns

is
married

to

Steve

Johns.


"He

was

like

the

one

constant

in

an

e
n
vironment

that

w
a
s

ev
e
r

c
hanging,"

she

w
e
nt

o
n
.

"In

he

w
o
uld

come.

He

would

grin

th
a
t

ha
l
f
-
toothless

grin.

He

called
me

'my

angel.'

I

would

walk

in

the

room,

and

he

would

smile

and

say,

'Oh,

my

angel,

I'm

s
o

happy

to

s
ee

you.'

We

would

joke

back

and

forth,

and

I

would
beg

him

to

quit

drinking

and

he

would

laugh

it

off.

And

when

time

went

by

and

he

didn
'
t

come

in

I

would

get

worried

and

c
all

the

coroner's

office.

When
he

wa
s

sober,

we

would

find

out,

oh,

he's

working

somep
l
ace,

a
n
d

my

husb
a
n
d

and

I

w
o
uld

go

and

have

dinner

where

he

w
a
s

working.

When

my

husband
a
n
d

I

were

da
t
ing,

and

we

were

going

t
o

get

married,

he

s
a
id,

'
Can

I

come

t
o

the

wedd
i
ng?'

And

I

a
lmost

felt

like

he

sh
ould.

My

joke

was

'If

you

are

sober
you

can

come,

because

I

can't

afford

your

bar

bill.'

When

we

st
arted

a

fam
i
ly,

he

would

lay

a

h
and

on

my

pregnant

be
l
ly

and

bless

the

child.

He

really

was
this

kind

of

light."

In

the

fall

of

20
0
3,

t
h
e

Reno

Police

Department

s
t
arted

an

ini
t
iative

designed

to

limit

panhandli
n
g

in

the

do
w
n
town

core.

There

were

articles

in

the
newspapers,

and

t
h
e

police

department

came

un
d
er

harsh

criticism

on

local

talk

radio.

The

crackdown

on

pa
n
handling

a
m
ounted

to

harass
m
ent,

the

critics
said.

The

h
o
meless

wer
e
n't

an

imposition

on

the

city;

they

w
ere

j
u
st

trying

to

get

by.

"One

morning,

I'm

list
e
ning

to

one

of

t
h
e

talk

shows,

and

t
h
ey're

just
trashing

t
h
e

police

department

and

g
oing

on

about

how

unfair

it

i
s
,"

O'Bryan

said.

"
A
nd

I

though
t
,

Wow,

I've

never

seen

any

of

these

c
ritics

in

one

of

the
alleyways

in

the

middle

of

the

winter

looking

for

bodies."

O'Bryan

was

angry.

In

d
o
wnt
o
wn

Reno,

food

for

the

homeless

was

plen
t
iful:

there

was

a

Gospel
kitchen

and

Catholic

Services,

and

e
ven

the

local

McDonald's

fed

the

hungry.

The

panh
a
ndling

was

for

li
q
uor,

and

the

liquor

was

anything

but

harmless.

He
and

Joh
n
s

spent

at

l
e
ast

h
a
lf

their

time

dealing

with

people

like

Mur
r
ay;

they

were

as

much

caseworkers

as

police

officers.

And

they

knew

they

weren't

the
only

on
e
s

involved.

When

som
e
one

passed

out

on

the

s
t
reet,

there

w
a
s

a

"One

d
o
wn"

call

to

the

paramed
i
cs.

There

w
e
re

four

p
eople

in

an

am
b
ulance,

and
t
h
e

pat
i
ent

som
e
times

st
a
yed

at

the

hospital

for

days,

becau
s
e

living

on

the

stree
t
s

in

a

state

o
f

almost

constant

intoxic
a
tion

was

a

reliable

way

of

getting

sick.

None

of

tha
t
,

surely,

could

be

cheap.


O'Bryan

and

Johns

called

someone

t
h
ey

knew

at

a
n

ambulance

servi
c
e

and

then

con
t
acted

the

local

hospitals.

"
We

came

up

with

th
r
ee

names

that

were

some
of

our

chronic

inebriates

in

the

downtown

area,

that

g
o
t

arrested

the

most

oft
e
n,"

O'Bryan

said.

"We

tracked

those

t
h
ree

i
ndivi
d
uals

throu
g
h

just

one

of

our
two

hospitals.

One

of

the

guys

had

been

in

jail

previ
o
usl
y
,

so

he'd

only

been

o
n

the

streets

for

six

months.

In

those

six

months,

he

had

accumulated

a

bill

of

a
hu
n
dred

thousand

dollars

and

that's

at

the

smaller

of

the

two

hospitals

near

downtown

Reno.

It's

p
r
etty

reasonable

to

assume

that

the

ot
her

hospital

had
an

even

la
r
ger

bill.

An
o
ther

indivi
d
ual

came

from

Portland

and

had

been

in

Reno

for

three

mon
t
hs.

In

those

three

mon
th
s,

he

had

accumulated

a

bill

for
s
i
xty
-
five

th
o
usand

dollars.

The

third

indivi
d
ual

actually

had

some

periods

of

being

sober,

and

had

acc
u
mulated

a

bill

of

f
i
fty

thousand."


The

first

of

those

people

was

Murray

Barr,

and

J
o
hns

a
n
d

O'
B
ryan

realized

that

if

you

totted

up

all

his

hospital

bi
l
ls

for

the

ten

y
e
ars

t
h
at

he

had

b
e
en

on
the

stre
e
ts

as

well

as

substance
-
abuse
-
treatm
e
n
t
costs,

doct
o
rs'

fees,

and

other

expenses

Murr
a
y

Barr

prob
a
bly

ran

up

a

medical

bill

as

large

as

a
n
yone
in

the

s
t
ate

of

Nevada.


"It

cost

us

one

million

dollars

not

to

do

something

about

Mu
r
ray,"

O'Bryan

said.


2.

Fifteen

y
e
ars

ago,

a
f
t
e
r

the

Rodn
e
y

King

beating,

the

Los

Angeles

Police

Department

was

in

c
risis.

It

was

accused

of

ra
cial

insensitivity

and

ill

discipline
and

violence,

and

the

a
s
sumption

was

t
h
at

t
h
ose

problems

had

spread

broadly

throughout

the

r
a
nk

and

file.

I
n

the

l
a
nguage

of

statisticians,

it

was

thought
that

L.A.P
.D
.'s

troubles

had

a

"norm
a
l"

d
i
stribution

that

if

y
o
u

graphed

them

the

re
s
u
lt

would

l
o
ok

like

a

bell

curve,

with

a

s
mall

n
u
mber

of

officers

at

one

end

of

t
h
e

curve,

a

small

number

at

the

o
t
h
e
r

end,

and

t
h
e

b
u
lk

of

the

problem

situated

in

t
h
e

middle.

The

bell
-
curve

assumption

has

bec
o
me

so

much

a
part

of

our

mental

architecture

that

we

tend

to

use

it

to

organize

experience

automa
t
ically.


But

when

t
h
e

L.A.P.D.

w
a
s

investiga
t
ed

by

a

spe
c
ial

commission

h
e
aded

by

Warren

Christopher,

a

very

different

picture

emerged.

Be
t
ween

1
986

a
n
d

19
9
0,
allegations

o
f

excessive

f
orce

or

improper

tactics

were

made

against

eig
h
teen

hundr
e
d

of

the

eighty
-
five

hundred

officers

in

the

L
.A.P
.
D.

The

broad

middle
had

scarcely

been

accused

of

anythi
n
g.

Furthermore,

more

t
h
an

f
o
urteen

hundred

officers

had

o
n
ly

one

or

two

allegations

made

a
g
ainst

th
e
m

and

bear

in
mind

that

t
h
ese

were

not

proven

charges,

that

t
h
ey

happen
e
d

in

a

four
-
year

period,

and

th
a
t

alle
g
a
tions

of

e
x
cessive

force

are

an

inevitable

feature

of

urban
police

work.

(The

N.Y.P.D.

receives

about

three

thousand

such

complaints

a

y
e
ar.)

A

hundred

a
n
d

eighty
-
th
r
ee

officers,

however,

had

four

or

more
complaints

against

th
e
m
,

forty
-
four

officers

had

six

or

more

c
o
mplaints,

sixteen

had

eight

or

more,

and

one

had

sixteen

compla
i
nts.

If

you

were

to

graph

the

troubles

of

the

L.A.P
.
D.,

it

wouldn't

look

like

a

bell

curve.

It

would

look

more

like

a

hockey

st
i
ck.

It

would

follow

what

statisticians

call

a

"power

law"
distribution

where

all

the

activity

is

not

in

t
h
e

middle

but

at

one

extr
e
m
e.

The

Christopher

Commission's

report

repeatedly

comes

back

to

what

it

describes

as

the

extreme

concentration

of

problematic

officers.

One

officer

had

been
the

subject

of

thirteen

al
l
egations

of

ex
cessive

use

of

force,

five

other

complaints,

twenty
-
eight

"use

of

force

reports"

(that

is,

documented,

internal

accounts

of

inappropriate

behavior),

and

one

shooting.

Another

had

s
ix

excessive
-
force

comp
la
ints,

ninet
e
en

other

complaints,

ten

use
-
of
-
force

reports,

and

three
shootings.

A

third

had

twenty
-
seven

use
-
of
-
force

reports,

and

a

f
o
urth

had

thirty
-
five.

Another

had

a

file

full

of

complaints

f
or

doing

things

like

"striking

an

arrestee

on

the

back

of

the

neck

with

the

bu
t
t

of

a

s
h
otg
u
n

for

no

apparent

reason

while

the

a
r
restee

w
a
s

k
n
eeling

and

hand
c
uffed,"

beating

up

a thirteen
-
ye
a
r
-
old

juvenile,

and

throwing

an

a
r
r
estee

from

h
is

chair

and

kicking

him

in

the

back

a
n
d

side

of

t
h
e

head

w
h
ile

he

w
a
s

ha
ndcuffed

and

lying

on his

stomach.


The

report

gives

the

str
o
ng

impression

that

if

you

fired

those

forty
-
four

cops

the

L.A
.
P.D.

would

suddenly

become

a

pretty

wel
l
-
func
t
ioning

poli
c
e
department.

But

the

report

also

suggests

t
hat

t
h
e

problem

is tough
e
r

than

it

seems,

b
ecause

those

forty
-
four

bad

cops

were

so

b
ad

that

the

institutional
mechanisms

in

place

to

get

rid

of

bad

apples

clearly

weren't

working.

If

you

made

t
h
e

mista
k
e

o
f

assuming

t
hat

t
h
e

dep
a
rtment's

tr
o
ubles

fell

into

a

normal
distribution,

you'd

propose

solutions

that

would

raise

the

p
e
rformance

of

the

middl
e

like

better

training

or

better

hiring

when

the

middle

didn't

need
help.

For

those

hard
-
core

few

who

d
id

need

hel
p
,

mean
w
hile,

the

m
edicine

th
a
t

hel
p
ed

the

mid
d
le

wouldn't

be

nearly

strong

enoug
h.


In

the

ninet
e
en
-
eighties,

when

ho
m
elessn
e
ss

first

surfaced

as

a

national

issue,

the

assumption

was

that

the

problem

fit

a

norm
a
l

distribution:

that

the

vast
majority

of

the

homele
s
s

were

in

the

same

s
tate

of

semi
-
permanent

distress.

It

was

an

assumption

that

bred

d
espair:

if

th
e
re

w
e
re

so

many

ho
m
eless,

with
so

many

pr
o
blems,

what

could

be

done

to

help

th
em?

Then,

f
i
fteen

years

ago,

a

young

Boston

College

graduate

student

named

Denn
i
s

Culhane

lived

in

a
shelter

in

P
h
iladelphia

for

seven

we
e
ks

as

part

of

the

res
e
arch

for

his

dissertation.

A

few

mont
h
s

later

he

we
n
t

back,

and

was

surprised

to

discover

that

h
e
couldn't

fi
n
d

any

of

t
h
e

people

he

had

recently

spent

so

much

t
i
me

with.

"It

ma
d
e

me

realize

that

most

of

t
h
ese

people

were

ge
t
ting

o
n

with

their

own
lives,"

he

said.


Culhane

th
e
n

put

toget
h
er

a

datab
as
e

the

first

of

its

kind

to

track

who

was

coming

in

and

out

of

the

s
h
elt
e
r

system.

W
hat

he

discovered

profoundly
changed

t
h
e

way

home
l
essn
e
ss

is

u
n
derstood.

Homelessn
e
ss

doesn
'
t

h
ave

a

norm
a
l

distribution,

it

turned

out.

It

has

a

power
-
law

distribution.

"We

found
that

eig
h
ty

per

cent

of

the

homele
s
s

were

in

and

out

really

quickly,"

he

s
a
id.

"In

P
h
iladelphia,

t
h
e

most

co
m
m
on

length

of

time

that

someone

is

homeless

is
one

day.

And

the

second

most

common

length

is

two

days.

And

they

never

come

b
a
ck.

Anyone

who

ever

has

to

s
t
ay

in

a

shelter

involuntarily

k
n
ows

that
all

you

think

about

is

how

to

make

sure

you

never

come

b
a
ck."


The

ne
x
t

ten

per

cent

w
e
re

what

Culhane

calls

e
pisodic

users.

T
h
ey

would

come

for

three

weeks

at

a

tim
e
,

a
n
d

return

periodical
l
y,

p
a
rticularly

in the

winter.
Th
e
y

were

q
uite

young,

and

they

were

o
f
ten

h
e
avy

drug

u
s
ers.

It

was

t
h
e

last

ten

per

cen
t

the

group

at

t
h
e

farth
e
st

edge

of

the

curve

that

interested
C
ulhane

the

most.

They

were

the

ch
r
onically

homeless,

w
h
o

lived

in

the

shelters,

s
o
metimes

for

years

at

a

t
i
me.

They

were

older.

M
any

were

mentally

ill

or
physical
l
y

disabled,

and

when

we

think

about

homelessn
e
ss

as

a

social

problem

t
h
e

p
e
ople

sleeping

on

the

sidewalk,

aggressively

panhandli
n
g,

lying
drunk

in

doorways,

huddl
e
d

on

subway

grates

a
n
d

under

bridges

it's

this

group

that

we

have

in

mind.

In

t
h
e

early

ninet
e
en
-
nineties,

Culhane's

database

suggested

that

New

York

City

had

a

quarter

of a

million

people

who

were

homeless

at

some

point

in

the

previ
o
us

half

decade


which

was

a

surprisingly
high

number.

But

only

about

twenty
-
five

hundred

were

chronically

homeless.


It

turns

out,

furthermor
e
,

that

this

g
r
o
u
p

costs

the

health
-
ca
r
e

and

social
-
s
ervices

systems

far

mo
r
e

than

any
o
n
e

had

ever

anticipated.

Culhane

est
i
mates

that
in

New

York

at

least

sixty
-
two

million

do
l
la
r
s

was

being

s
p
ent

annually

to

shelter

just

those

twenty
-
five

hundred

hard
-
co
r
e

ho
m
eless.

"It

costs

twe
n
ty
-

four
thousand

dollars

a

year

for

one

of

these

she
l
ter

beds,"

C
ulhane

said.

"We're

talking

about

a

cot

eighteen

inches

a
w
ay

from

the

n
e
xt

cot."

Boston

Health

Care
for

the

Homeless

Program,

a

leading

servi
c
e

group

for

t
h
e

homeless

in

Boston,

r
ecently

tracked

the

me
d
ical

expenses

of

a

hund
r
ed

and

ni
n
e
t
een

chronically

homeless

p
e
ople.

In

the

course

of

five

years,

t
h
irty
-
t
hree

pe
o
ple

died

and

seven

more

were

sent

to

nursing

homes,

a
nd

the

group

still

accounted

for

18,834
e
m
ergency
-
room

visits

at

a

minim
u
m

cost

of

a

t
h
ousand

dollars

a

visit.

The

Univer
s
ity

of

California,

San

D
i
ego

Medi
c
al

Center

followed

fifteen

chronically

homeless

i
n
ebriates

and

found

that

over

eighteen

mon
t
hs

those

fifteen

p
eople

were

treated

at

the

hospital's

e
m
ergency

room

four

hu
n
dred

and

seventeen

times,

a
n
d

r
a
n

up

bills

that

averaged

a

hundred

t
h
o
u
sand

dollars

each.

One

person

San

Diego's

counterpart

to

Murray

Barr

came

to

the
emergency

room

eighty
-
s
even

times.


"If

it's

a

medical

admission,

it's

likely

to

be

the

guys

with

t
h
e

really

complex

pneumonia,"

James

Dunford,

the

city

of

San

Diego's

emergency

medical

director

and

the

author

of

the

observational

study,

said.

"They

are

drunk

and

they

aspirate

and

get

vomit

in

their

lungs

and

develop

a

lung

abscess,

a
n
d

they

get

hy
p
othermia

on

top

of

tha
t
,

because

th
e
y're

out

in

the

rain.

They

end

up

in

the

intensi
v
e
-
care

unit

with

these

very

compl
ica
ted

medical

infections.

These

are
the

guys

who

typically

get

hit

by

cars

and

buses

and

t
r
ucks.

They

often

h
a
ve

a

neurosurgical

catastrophe

as

wel
l
.

So

they

are

very

prone

to

just

falling

down
and

cracking

their

head

and

getting

a

subdural

hemat
o
ma,

which,

if

not

drained,

could

ki
l
l

them,

and

it's

the

guy

who

falls

down

and

hits

his

head

who

e
n
ds

up

costing

you

at

l
e
ast

fifty

th
o
usand

dollars.

Meanwh
i
le,

they

are

going

through

alcoholic

withdrawal

and

have

de
vastating

liver

disease

that

only

adds

to

their

i
nability

to

f
i
ght

infections.

There

is

no end

to

the

issues.

We

do

this

huge

drill.

We

r
un

up

big

lab

fees,

and

t
h
e

nurses

w
ant

to

q
uit,

because
th
e
y

see

t
h
e

same

guys

come

in

o
v
er

and

over,

and

all

we're

doing

is

making

them

capable

of

walking

down

the

block."


The

homel
e
ssne
s
s

problem

is

like

t
h
e

L.A.P.D.'s

bad
-
cop

problem.

It's

a

matter

of

a

f
ew

hard

ca
s
es,

and

th
a
t
'
s

good

new
s
,

beca
u
se

when

a

problem

is

that
concentrated

you

can

wrap

your

arms

around

it

and

t
h
ink

about

solvi
n
g

it.

The

bad

news

is

that

those

few

h
a
rd

cases

a
r
e

hard.

T
hey

are

falling
-
down
drunks

with

liver

disease

and

complex

infections

and

mental

illness.

They

need

time

and

attention

and

lots

of

money.

But

enorm
o
us

sums

of

money

are
already

being

spent

on

t
h
e

chronically

homeless,

and

Culha
n
e

saw

t
hat

t
h
e

kind

of

money

it

w
o
uld

take

to

s
olve

the

homeless

pr
o
blem

could

w
ell

be

less
than

the

ki
n
d

of

money

i
t

took

to

ig
n
ore

it.

Murray

Barr

used

m
o
re

healt
h
-
care

dollar
s
,

after

all,

t
h
an

almost

a
n
yone

in

t
h
e

state

of

Nevada.

It

would
probably

have

been

cheaper

to

give

him

a

full
-
time

nurse

a
n
d

his

own

a
partment.


The

leading

exponent

for

the

power
-
law

theory

of

homelessness

is

Philip

Mangano,

who,

since

he

was

appointed

by

President

Bush

in

200
2
,

h
a
s

b
e
en

the
executive

director

of

the

U.S.

Intera
g
ency

Council

on

Homelessne
s
s,

a

group

that

ove
r
sees

t
h
e

programs

of

t
w
enty

federal

agencies.

M
angano

is

a

slender
man,

with

a

mane

of

w
h
ite

hair

and

a

magnetic

presence,

w
h
o

got

his

s
t
art

as

a
n

advocate

for

the

h
omeless

in

Massachus
e
tts.

I
n the

p
a
st

two

y
e
ars,

he

h
a
s
crisscrossed

the

United

S
tates,

educating

local

mayors

and

city

counc
i
ls

about

the

r
e
al

shape

of

t
h
e

homeles
sn
ess

curve.

Simply

running

soup

kitchens

and
shelters,

he

argues,

allows

the

chr
o
nically

homeless

to

re
m
a
in

chronically

homeles
s
.

You

build

a

shelter

an
d

a

soup

kitchen

if

you

think

th
a
t

h
o
melessn
e
ss

is
a

problem

with

a

bro
a
d

and

unm
a
nageable

m
i
ddle.

But

if

it's

a

problem

at

t
h
e

fringe

it

can

be

solved.

So

far,

Mangano

has

c
o
nvinced

more

than

two
hundred

cities

to

radically

reëvaluate

their

poli
c
y

for

dealing

with

the

homeless.


"I

was

in

S
t
.

Louis

recently,"

Mangano

said,

back

in

June,

when

he

dropped

by

New

York

on

his

way

to

Boise,

Idaho.

"I

s
p
oke

wi
t
h

people

doing

serv
i
ces
there.

They

had

a

very

d
ifficult

group

of

people

they

couldn't

reach

no

matter

what

t
h
ey

offered.

So

I

said,

Take

some

of

y
our

money

and

rent

some
apartments

and

go

out

t
o

those

pe
o
ple,

and

literally

go

out

the
r
e

with

t
h
e

key

and

say

to

them,

'
This

is

the

k
ey

to

an

apartment.

If

y
o
u

come

with

me

right
now

I

am

g
o
ing

to

give

it

to

you,

and

you

are

going

to

have

that

apartment.'

And

so

they

did.

And

one

by

one

those

people

were

coming

in.

Our

intent

is

to
take

homeless

policy

fr
o
m

the

old

idea

of

funding

programs

that

serve

homeless

pe
o
ple

endlessly

and

invest

in

results

t
h
at

act
u
ally

end

homeles
s
ness."


Mangano

is

a

history

buff,

a

m
a
n

w
h
o

sometimes

falls

asleep

list
e
ning

to

old

Malcolm

X

speech
e
s,

and

who

peppers

his

remarks

w
i
th

references

to

the civil
-
r
ights

movement

and

the

Berl
i
n

Wall

and,

most

of

all,

t
h
e

fight

a
g
ainst

slavery.

"I

am

an

ab
o
litionist,"

he

says.

"My

o
ff
ice

in

Boston

was

opposite

the
monument

to

the

54th

R
egiment

on

the

Boston

Common,

up

the

s
t
reet

from

the

Park

Street

Chu
r
ch,

where

William

Lloyd

Garrison

ca
l
led

for

im
m
ediate
abolition,

and

around

the

corner

from

whe
r
e

Fr
e
derick

Douglass

gave

that

famous

speech

at

the

Tremont

Temple.

It

is

very

much

i
ngrained

in

me

that

you
do

not

manage

a

social

wrong.

You

should

be

ending

it."


3.

The

old

Y
.
M.C.A.

in

downtown

Denver

is

on

Sixteenth

Street,

just

east

of

the

central

busin
e
ss

district.

The

main

building

is

a

h
an
d
some

six
-
story

stone
structure

that

was

erected

in

19
0
6,

a
n
d

ne
x
t

do
o
r

is

an

a
n
n
e
x

t
hat

w
a
s

a
dded

in

the

nineteen
-
fif
t
ies.

On

t
h
e

g
round

floor

there

is

a

g
y
m

and

exercise

rooms.

On

the

upper

floors

there

are

several

hundred

apartments

b
rightly

painted

one
-
bedrooms,

efficiencies,

and

S
.
R.O.
-
style

rooms

w
i
th

m
i
crowaves

and
refrigerators

and

central

airconditio
n
ing

and

for

the

past

s
e
ver
a
l

years

those

apartments

have

been

owned

and

managed

by

the

C
o
lorado

Coalit
i
on

for
the

Homeless.


Even

by

big
-
city

standa
r
ds,

Denver

has

a

serious

homeles
sn
ess

problem.

The

winters

a
r
e

relatively

mild,

and

the

summe
r
s

aren't

n
ea
r
ly

as

hot

as

t
h
ose

of
neighboring

New

Me
x
ico

or

Utah,

which

has

ma
de

the

city

a

magnet

for

the

indigen
t
.

By

the

city
'
s

estimates,

it

has

roughly

a

thousand

chronical
l
y

homeless

p
e
ople,

of

whom

three

hu
n
dred

spend

their

time

downtown,

along

the

cen
t
ral

Sixteenth

Street

sho
p
ping

corridor

or

in

nearby

Civic

Cen
t
er

Park.

Many

of
the

merchants

downtown

worry

that

t
h
e

presence

of

the

home
l
ess

is

scari
n
g

away

cus
t
omers.

A

few

blocks

north,

near

t
h
e

hospital,

a

modest,

low
-
slung

detox

center

handles

t
w
e
n
ty
-
eight

th
ousand

ad
m
issions

a

y
ea
r,

many

of

t
h
em

homel
e
ss

people

w
h
o

have

pa
s
s
ed

out

on

t
h
e

stree
t
s,

e
i
ther

from
liquor

o
r

a
s

is

increasingly

the

case

from

m
o
uthwash.

"
D
r.

——
Dr.

Tich,

they

call

it

is

the

brand

of

mou
t
hwash

they

use,"

says

R
oxane

White,

the
manager

of

the

city's

so
c
ial

services.

"You

can

i
m
agine

wh
a
t

t
hat

does

to

your

gut."


Eighteen

months

ago,

t
h
e

city

signed

up

with

Mangano.

With

a

mixture

of

federal

and

local

fun
d
s,

the

C.C.H.

inaugurated

a

new

pr
o
gram

that

h
a
s

so

far
enrolled

a

hundred

and

six

people.

It

is

aimed

a
t

the

Murray

Barrs

of

Denver,

the

people

costing

the

system

th
e

most.

C.
C.
H.

w
e
nt

aft
e
r

the

people

who

had
been

on

the

streets

the

longest,

who

had

a

criminal

rec
o
rd,

who

had

a

problem

with

substance

abuse

or

mental

illness.

"We

h
ave

one

individual

in

her

early
sixties,

but

looking

at

her

you'd

think

she's

eighty,"

R
a
chel

Post,

the

director

of

s
ubstance

treatment

at

th
e

C.C.H.,

s
a
i
d.

(Post

changed

some

details

about

her

clients

in

ord
e
r

to

protect

their

identity.)

"She's

a

c
h
ronic

alcoholic.

A

t
y
pical

day

for

her

is

she

gets

up

and

tr
i
es

to

find

whatever

's

going

to

drink
that

d
a
y.

S
h
e

falls

down

a

lot.

There
'
s

ano
t
h
er

person

who

c
a
me

in

during

the

first

w
eek.

He

was

on

methad
o
n
e

maint
e
nance.

He'd

h
a
d

psychiatric
treatmen
t
.

He

was

incarcerated

for

eleven

year
s
,

and

lived

on

the

streets

for

three

ye
a
rs

after

th
a
t,

and,

if

t
h
at
'
s

not

e
n
ough,

he

had

a

hole

in

his

h
eart."


The

recruitment

strate
g
y

was

as

s
i
mple

as

the

one

that

Mangano

had

l
a
id

out

in

St.

Louis:

Would

you

like

a

free

apartment?

The

e
n
rollees

got

either

an
efficiency

at

the

Y.M.C.A.

or

an

apar
t
m
ent

rented

for

them

in

a

buil
d
ing

somewhere

else

in

the

ci
t
y,

provided

they

agreed

to

w
o
rk

within

the

rules

of

the
program.

In

the

basement

of

the

Y,

w
h
ere

the

ra
cq
uetball

courts

used

to

be,

the

coalition

built

a

command

cen
t
er,

staffed

w
ith

ten

caseworkers.

Five

days

a
week,

betw
e
en

eight
-
thi
r
ty

and

t
en

i
n

the

morn
i
n
g,

the

cas
e
workers

meet

and

p
a
instakingly

review

the

s
t
a
t
us

of

everyone

in

the

program.

On

the

wall
around

the

conference

table

are

several

lar
g
e

white

boards,

with

lists

of

d
o
ctor's

a
ppointmen
t
s

and

court

dates

and

medica
t
ion

schedules.

"We

need

a
staffing

rat
i
o

of

one

to

t
en

to

ma
k
e

it

work,"

Post

said.

"You

go

out

there

and

you

find

people

a
n
d

ass
e
ss

h
o
w

're

doing

in

th
e
ir

residence.

Somet
i
mes

we're

in
contact

with

someone

every

day.

Ideally,

we

want

to

be

i
n

contact

every

couple

of

days.

We've

got

about

fifteen

people

we're

really

worried

about

now."


The

cost

of

s
ervices

comes

to

about

t
en

thousand

dollars

per

h
o
meless

client

per

year.

An

efficiency

apartment

in

Denver

averages

$3
7
6

a mo
n
th,

o
r

just over

forty
-
five

hundred

a

year,

whi
c
h

mea
n
s

t
ha
t

you

can

h
o
use

and

care

for

a

chronically

homeless

person

for

at

most

f
i
fteen

thou
sa
n
d

dollars,

or

about

a third

of

what

he

or

she

would

cost

on

the

street.

The

idea

is

that

once

the

people

in

the

program

get

stabilized

they

will

find

jobs,

and

start

to

pick

up

more and

more

of

their

own

rent,

which

would

bring

someone's

a
nnual

c
o
st

t
o

the

program

closer

to

six

thousand

dollars.

As

of

today,

seventy
-
five

su
p
portive
housing

slots

have

alre
a
dy

been

ad
d
ed,

and

the

city's

homeless

plan

calls

for

eight

h
undred

more

over

the

n
e
x
t

ten

year
s
.


The

reality,

of

course,

is

hardly

that

neat

and

ti
d
y.

The

idea

t
hat

t
h
e

very

sickest

and

most

troubled

of

the

homeless

can

b
e

stabilized

and

eventually
employed

is

only

a

hop
e
.

Some

of

t
h
em

plainly

won't

be

able

to

get

t
h
e
r
e:

th
e
s
e

are,

after

all,

ha
r
d

cases.

"W
e
've

got

one

man,

he's

in

his

twenti
e
s
,
"

Post

said.
"Already,

he

has

cirrhosis

of

the

liver.

One

time

he

blew

a

blood

alcohol

of

.49,

which

is

enough

to

kill

most

people.

T
h
e

first

place

we

had

he

brought

over
all

his

friends,

and

t
h
ey

partied

and

tra
s
hed

the

place

a
n
d

broke

a

window.

Then

we

gave

h
i
m

anot
h
er

a
partment,

a
n
d

he

did

t
h
e

same

thi
n
g."


Post

s
a
id

t
h
at

the

man

h
a
d

been

so
b
er

for

several

months.

B
ut

he

could

relapse

at

s
o
me

point

a
n
d

perhaps

trash

a
n
other

apartme
n
t,

and

they'd

have

to
figure

out

what

to

do

with

him

ne
x
t.

Post

had

just

been

on

a

conference

call

with

some

people

in

New

York

City

who

run

a

similar

pr
o
gram,

and

they

talked

about

whether

g
i
ving

clients

so

many

c
ha
n
ces

simply

encourages

them

to

behave

irrespo
n
sib
l
y.

For

some

people,

it

probably

d
oes.

But

what

was

the
alternative?

If

this

you
n
g

man

w
a
s

put

back

on

the

stre
e
ts,

h
e

would

cost

the

system

even

more

money.

The

current

philosophy

of

w
elfare

holds

that
government

assis
t
ance

s
h
ould

be

temporary

and

conditional,

to

a
v
oid

creating

dependency.

But

someone

who

blows

.49

on

a

Breathalyzer

and

h
a
s

cirrhosis

of

the

liver

at

the

age

of

t
we
n
t
y
-
seven

d
oesn't

resp
o
n
d

to

incent
i
ves

and

s
a
n
ctions

in

the

usual

way.

"The

most

c
omp
l
icated

people

to

work

with

are

those

w
h
o

have

be
e
n

homeless

f
or

so

long

t
h
at

going

back

to

the

str
e
ets

just

isn't

scary

to

th
e
m
,"

Post

sa
i
d.

"The

su
m
m
er

comes

along

and

they

say,

'I
don't

need

to

follow

y
o
ur

r
ules.'

"

Power
-
law

homelessness

policy

has

to

do

the

o
p
posite

of

normal
-
distribution

social

policy.

It

should

create

d
ependency:
you

want

p
e
ople

who

h
a
ve

been

outside

the

s
y
st
e
m

to

come

ins
i
de

and

rebuild

their

lives

under

the

supervision

of

those

t
e
n

cas
e
work
e
rs

in

the

ba
s
ement of

the

Y.M
.
C.A.


That

is

w
h
at

is

so

perple
x
ing

about

pow
e
r
-
law

homeless

policy.

From

an

economic

persp
e
ctive

the

approach

makes

perf
e
ct

sense.

B
ut

from

a

moral
perspective

it

doesn't

s
e
em

fair.

Thousands

of

p
eople

in

the

Denver

area

no

doubt

live

day

to

day,

work

two

or

three

jobs,

and

are

eminently

deserving

of

a
helping

ha
n
d

and

no

o
n
e

offers

th
e
m

the

key

to

a new

apar
t
m
ent.

Yet

that's

just

w
h
at

the

guy

s
c
reaming

obscenities

and

swigging

Dr.

Tich

gets.

When

the

welfare

mom's

time

on

public

assistance

runs

out,

we

cut

her

off.

Yet

when

t
h
e

h
omeless

m
a
n

trash
e
s

his

apartment

we

give

h
im

another.

S
o
cial

benefits

are

supposed

to

have

some

kind

of

m
o
ral

justificat
i
on.

We

give

them

to

widows

and

di
s
a
bled

veterans

and

poor

mothers

w
ith

small

children.
Giving

the

homeless

guy

passed

out

on

the

sidewalk

an

a
pa
rtment

h
a
s

a

different

rationale.

I
t
's

s
i
mply

about

efficiency.


We

also

believe

that

t
h
e

distribution

of

social

benefits

should

not

be

arbitrary.

We

d
on
't

give

only

to

some

poor

mothers,

or

to

a

random

handful

of

disabled
veterans.

We

g
i
ve

to

everyone

who

m
ee
ts

a

formal

c
riterion,

and

the

moral

credibility

of government

assis
t
ance

d
erive
s
,

in

part,

from

this

universality.

But
the

Denver

homelessness

program

doesn't

help

every

c
h
ronically

h
o
meless

person

in

Denver.

There

is

a

waiting

list

of

six

hundred

for

the support
i
ve
-
housing

pr
o
gram;

it

will

be

yea
r
s

before

all

those

people

get

apartments,

and

some

may

never

get

one.

There

i
s
n't

e
n
ough

money

to

go

around, and

to

try

to

help

everyone

a

little

bit

to

observe

the

princip
l
e

of

univer
s
a
lity

i
s
n't

as

cost
-
effective

as

helping

a

few

pe
op
le

a

lot.

Being

fair,

in

this

case, means

providing

shelte
r
s

and

soup

kitchens,

an
d

shelters

a
n
d

soup

kitchens

don
'
t

s
olve

the

problem

of

homelessn
e
ss.

Our

u
s
ual

moral

intuitions

are

little use,

then,

w
h
en

it

comes

to

a

few

ha
r
d

cases.

Power
-
law

problems

leave

us

with

an

u
n
pleasant

c
h
oice.

We

can

be

true

to

our

principl
e
s

or

we

can

f
ix

the problem.

We

cannot

do

both.


4.

A

few

m
i
les

northwest

of

the

old

Y.M.C.A.

in

downtown

Denve
r
,

on

t
h
e

Speer

Boulevard

off
-
ramp

from

I
-
25,

there

is

a

big

el
e
ctr
o
nic

sign

by

the

side

of
the

road,

c
o
nnected

to

a

device

that

remotely

measures

the

e
m
iss
i
ons

of

the

vehicles

driving

pas
t
.

When

a

car

with

properly

functioning

pollutio
n
-
control
e
q
uipment

passes,

the

s
ign

flashes

"
Good."

When

a

car

passes

that

is

w
e
ll

over

the

acceptable

limits,

the

sign

flashes

"
P
oor."

If

you

stand

at

t
h
e

Speer
Boulevard

e
x
it

and

wat
c
h

the

sign

f
o
r

any

length

of

time,

you'll

find

that

virtually

every

car

scor
e
s

"Good."

An

Audi

A4


"Good."

A

Buick

Century


"Good."

A

Toyota

Corolla

"Good."

A

Ford

Tau
r
us

"Good."

A

Saab

9
-
5

"Good,"

and

on

and

o
n
,

until

after

twenty

minutes

or

so,

some

beat
-
up

old

Ford
Escort

or

tricked
-
out

Porsche

drives

by

and

the

sign

flashes

"Poor."

The

picture

of

the

smog

problem

you

get

from

watching

the

Speer

Boulevard

s
ign

and
the

picture

of

the

homelessness

problem

you

get

f
rom

listening

in

on

the

morning

staff

meetings

at

the

Y.M.C.A.

are

pretty

much

the

same.

Auto

emissions

follow

a

power
-
law

distribution,

and

the

air
-
pollution

e
x
a
m
ple

offers

a
n
other

look

at

why

we

st
r
uggle

so

much

with

problems

cent
e
red

on

a

few

hard

cases.


Most

cars,

e
s
pecially

new

ones,

are

e
x
traordinarily

clean.

A

2004

Subaru

in

good

working

order

has

a
n

e
x
h
a
ust

stream

t
hat's

just

.06

per

cent

carbon
monoxide,

which

is

negligi
b
le.

But

on

alm
o
st

any

highway,

for

whatever

reason

age,

ill

repair,

deliberate

tampering

by

the

owner

a

small

number

of
cars

can

ha
v
e

carbon
-
monoxide

leve
l
s

in

excess

of

ten

per

cent,

w
h
ich

is

a
l
most

two

h
u
ndred

times

higher.

In

D
enver,

five

per

c
ent

of

the

vehicles

on

the
road

produce

fifty
-
five

p
er

cent

of

the

automobile

pollution.


"Let's

say

a

car

is

fifteen

years

old,"

Donald

Ste
d
man

s
a
ys.

S
t
edman

is

a

chemist

and

automobile
-
emissions

specialist

at

the

Universi
t
y

of

Denver.

His
laboratory

put

up

the

sign

on

Speer

Avenue.

"
O
bvi
o
usly,

the

older

a

car

is

the

more

li
k
ely

it

is

to

become

broken.

It's

the

same

a
s

h
u
man

beings.

And

by

broken

we

mean

a
n
y

n
umber

of

m
echanical

malfunctions

the

computer's

not

working

anymore,

fuel

injection

is

s
t
uck

open,

the

cat
a
lyst

's

not

unusual

that
t
h
ese

f
a
ilure

modes

result

in

high

emissions.

We

have

at

least

one

car

in

our

database

which

was

emitti
n
g

seventy

g
r
ams

of

hyd
r
ocarbon

per

mile,

which
mea
n
s

th
a
t

you

could

almost

drive

a

H
o
n
da

Civic

on the

e
x
haust

fumes

from

that

car.

I
t's

not

just

old

cars.

It's

n
e
w

cars

with

high

mileage,

like

taxis.

One

of
the

most

successful

and

lea
s
t

publicized

control

measures

w
a
s

d
one

by

a

district

attorney

in

L.A.

back

in

the

nineties.

He

went

to

LAX

and

discovered

t
hat

all

of

the

Bell

Cabs

were

gross

emitters.

One

o
f

those

cabs

emitted

m
o
re

than

its

o
wn

weight

o
f

pollution

every

year."


In

Stedm
a
n
'
s

view,

the

c
urrent

syst
e
m

of

smog

c
h
ecks

mak
e
s

little

sense.

A

million

motorists

in

Denver

have

to

go

to

an

e
m
issions

c
e
nter

every

year

take
time

from

work,

wait

in

line,

pay

fifteen

or

twe
nt
y
-
five

dollars

for

a

test

that

more

th
an

ninety

p
e
r

cent

of

th
e
m

don't

ne
e
d.

"Not

everybody

gets

tested

for
breast

cancer,"

Stedman

says.

"Not

e
verybody

takes

an

AIDS

test."

O
n
-
site

smog

che
c
ks,

furthermore,

do

a

pretty

bad

job

of

fin
d
ing

and

fixing

the

few
outliers.

Car

enthusias
t
s

with

high
-
powered,

high
-
polluting

sports

cars

have

been

known

to

d
rop

a

clean

engine

into

t
h
eir

car

on

the

day

they

get

it
tested.

Others

register

their

car

in

a

far
a
way

to
w
n

without

e
m
issions

testing

or

arrive

at

t
h
e

t
e
st

site

"hot"

h
a
ving

just

come

off

hard

driving

on

the
freeway

which

is

a

good

way

to

make

a

dirty

engine

appear

to

be

clean.

Still

others

r
andomly

pass

the

test

when

they

shouldn't,

because

dirty

engines

are
highly

vari
a
ble

and

so
m
etimes

burn

cleanly

for

short

durations.

There

is

l
ittle

evidence,

Stedman

says,

t
hat

t
h
e

city's

regime

of

inspections

mak
e
s

a
n
y
difference

in

air

q
uality.


He

proposes

mobile

testing

instead.

Twenty

yea
r
s

ago,

he

invented

a

device

the

size

o
f

a

suitcase

t
hat

uses

inf
r
ared

light

to

instantly

m
easure

and

t
h
en
analyze

the

emissions

of

cars

as

t
h
ey

drive

by

on the

high
w
a
y
.

T
h
e

Speer

Avenue

sign

is

at
t
a
ched

to

one

of

S
t
edman's

de
vices.

H
e

says

that

cities

should put

half

a

dozen

or

so

o
f

his

devices

in

v
ans,

pa
r
k

them

on

freeway

off
-
ramps

around

the

city,

and

have

a

police

car

pois
e
d

to

pull

over

anyone

who

fails the

t
e
st.

A

half
-
dozen

vans

could

test

thirty

thousand

cars

a

da
y.

For

the

same

tw
e
n
ty
-
five

million

dollars

that

Denver's

moto
r
ists

now

spend

on

on
-
site testing,

Ste
d
man

estima
t
es,

the

city

could

identify

and

fix

twenty
-
five

thousand

tru
l
y

dirty

vehicles

every

year,

and

within

a

few

ye
ars

cut

automobile emissions

in

the

D
e
nver

metropolitan

area

by

s
o
mewhere

b
e
tween

t
h
irty
-
five

and

forty

per

cent.

The

city

could

stop

ma
n
a
ging

its

s
m
og

problem

and

s
t
art ending

it.


Why

don't

we

all

adopt

the

Sted
ma
n

method?

T
h
ere's

no

m
oral

imped
i
ment

here.

We're

used

to

the

police

pulling

people

over

for

having

a

blown
headlight

or

a

broken

side

mirror,

and

it

wouldn't

be

difficult

to

have

them

add

pollution
-
cont
r
ol

devices

to

their

list.

Yet

i
t

does

run

counter

to

an
instinctive

social

prefer
e
n
ce

for

thinking

of

pol
l
ution

as

a

p
r
oblem

to

which

we

all

contribute

equally.

We

have

developed

ins
t
itutions

that

move
reassuringly

qu
i
ckly

and

forcefully

o
n

collect
i
ve

problems.

Con
g
ress

passes

a

law.

T
h
e

Environmental

Pro
t
ection

Agency

promulg
a
tes

a

regulation.

The
auto

industry

makes

i
t
s

cars

a

little

cleaner,

an
d

presto

the

a
i
r

gets

b
etter.

But

S
t
edman

do
es
n't

much

care

about

what

happens

in

Washington

and
Detroit.

The

challenge

of

controlling

air

pol
l
ution

isn't

so

much

about

the

l
a
ws

as

it

is

about

com
p
l
i
ance

with

them.

It's

a

policing

p
robl
e
m,

rather

than

a
policy

problem,

and

th
e
re

is

somet
h
ing

ultimately

unsatisfying

a
b
out

his

proposed

solution.

He

wants

to

e
n
d

air

pollution

in

D
e
nv
e
r

with

a hal
f
-
dozen
vans

outfitted

with

a

co
n
traption

about

the

size

o
f

a

suitcase.

Can

such

a

big

problem

have

such

a

small
-
bore

solution?


That's

w
h
at

made

t
h
e

fi
n
dings

of

the

Christopher

Commission

so

unsatisf
y
ing.

We

put

together

blue
-
ribbon

panels

when

we're

faced

with

probl
e
ms

that
seem

too

la
r
ge

for

the

n
o
rmal

mech
a
n
isms

of

bureaucratic

repair.

We

want

sweeping

reforms.

But

what

was

t
h
e

commission's

most

m
emorable

observatio
n
?
It

was

the

story

of

an

o
fficer

with

a

known

hist
or
y

of

doing

things

like

beating

up

handcuffed

suspects

who

nonethel
e
ss

received

a

performance

review

from
his

superior

stating

t
h
at

he

"usually

conducts

himself

in

a

manner

t
hat

inspires

respect

for

the

law

a
n
d

inst
i
lls

pu
b
lic

c
o
nfidence."

This

is

what

you

say

about
an

officer

when

you

h
a
ven't

actually

read

his

file,

and

t
h
e

implication

of

the

Christ
o
pher

Commissi
o
n's

report

was

that

the

L.A.P.D.

might

help

so
l
ve

its
problem

simply

by

getting

its

p
oli
c
e

captai
n
s

to

read

the

files

of

their

officers.

The

L.A.P.D.'s

problem

w
a
s

a

m
a
tter

n
ot

of

policy

but

of

compliance.

The
depa
r
tment

need
e
d

to

adhere

to

the

rules

it

already

h
a
d

in

place,

a
n
d

th
a
t's

not

what

a

public

h
u
ngry

f
o
r

institutional

transformat
i
on

wan
t
s

to

hear.

Solvi
n
g
problems

that

h
a
ve

power
-
law

distri
b
utions

doesn't

just

violate

our

mo
ra
l

intuitions;

it

violates

our

po
l
itical

intuitions

as

well.

It's

hard

not

to

conclude,

in
the

end,

that

t
h
e

reason

w
e

treated

t
h
e

homeless

as

one

hopele
s
s

undifferent
i
ated

group

for

so

long

is

not

simply

that

we

didn't

know

better.

It
'
s

that

we
d
i
dn't

want

to

know

bette
r
.

It

was

easier

the

old

w
a
y.

Power
-
law

solutions

have

little

appeal

to

the

ri
g
h
t,

because

t
h
ey

involve

special

treatment

for

people

who

do

not

deserve

special

treatment;

and

t
h
ey

have
little

appeal

to

the

left,

b
ecause

their

emphasis

on

efficiency

over

fairness

suggests

t
h
e

cold

n
u
mber
-
crunching

of

Chicago
-
school

cost
-
benefit

analysis.

Even
the

promise

of

millions

o
f

dollars

in

savings

or

cl
e
aner

air

or

better

police

departments

cannot

ent
i
rely

compensate

for

such

discomfort.

In

Denver,

J
ohn
Hickenlooper,

the

city's

enormously

popular

m
a
yor,

has

wo
r
ked

on

the

h
omelessne
s
s

issue

tirelessly

during

the

past

couple

of

y
e
ars.

He

spent

m
ore

time

on
the

subject

in

his

annual

State

of

t
h
e

City

add
r
ess

this

past

summer

th
a
n

on

a
n
y

ot
h
er

topic.

He

gave

the

speech,

with

deli
b
erate

symbolism,

in

the

city's
downtown

Civic

Center

Park,

where

homeless

p
eople

gather

every

day

with

their

s
h
opping

carts

and

garbage

bags.

He

has

go
n
e

on

local

talk

radio

on

many
occasions

to

discuss

w
h
at

t
h
e

city

is

doing

about

the

i
s
sue.

He

has

commissioned

studies

t
o

show

w
ha
t

a

drain

on

the

city
'
s

re
s
ources

the

homeless
population

has

become.

But,

he

says,

"there

are

still

people

w
h
o

stop

me

going

into

the

supermarket

and

say,

'I

can't

believe

you're

g
oing

to

help

those
homeless

p
e
ople,

those

b
ums.'"


5.

Early

one

morning

a

year

ago,

M
a
rla

Johns

g
ot

a

call

from

her

husband,

Steve.

He

was

at

w
o
rk.

"He

call
e
d

and

woke

me

up,"

J
ohns

rememb
e
rs.

"He

was
choked

up

and

crying

on

the

ph
o
n
e.

And

I

thought

that

somethi
n
g

had

happened

w
ith

anot
h
er

police

officer.

I

said,

'O
h
,

my

gosh,

what

h
a
pp
e
ned?'

He said,

'Murr
a
y

died

last

night.'

"

He

died

of

intest
i
nal

bleeding.

At

the

police

department

t
h
at

mor
n
ing,

some

of

the

officers

gave

Murray

a

mome
n
t

of

silence.


"There

are

n
ot

many

d
a
y
s

th
a
t

go

by

that

I

don't

have

a

tho
u
ght

of

him,"

she

w
e
nt

o
n
.

"Christmas

comes


a
n
d

I

used

to

b
uy

him

a

C
h
ristmas

pre
s
ent.

Make
sure

he

had

w
a
rm

gloves

and

a

blanket

and

a

coat.

The
r
e

was

t
h
is

mutual

respect.

There

was

a

time

wh
e
n

ano
t
h
er

intoxicated

patient

jumped

off

the

gurney
and

was

coming

at

me,

and

Murray

jumped

off

his

g
urney

and

s
h
ook

his

fist

and

s
a
id,

'
D
on't

you

touch

my

ange
l
.'

You

know,

when

he

was

monitored

by
the

s
y
stem

he

did

fabulously.

He

would

be

on house

arrest

and

h
e

w
o
uld

get

a

job

and

he

would

save

mo
n
ey

and

go

to

work

every

day,

and

he

wouldn't
drink.

He

would

do

all

t
h
e

things

he

was

supposed

to

do.

There

are

some

people

who

can

be

very

successful

members

o
f

society

if

someone

monitors

them.
Murray

needed

someone

to

be

i
n

charge

of

him."


But,

of

cour
s
e,

Reno

didn't

have

a

p
l
ace

w
h
ere

Murray

could

be

given

the

structure

he

nee
d
ed.

S
omeone

must

have

dec
i
ded

that

it cost

too

much.
"I

told

my

h
usband

that

I

would

claim

his

body

if

no

one

else

did,"

she

sa
id.

"I

would

not

have

h
i
m

in

an

u
n
marked

grave."

Direct
i
ons
:

A
n
s
wer

t
h
e

fol
l
owing

q
u
est
i
ons

using

you
r

knowledge

o
f

the

mater
i
als

thus

far.


1.

What

was

th
e

effect

o
f


million

dolla
r


Murray

o
n

society

a
t

large?

2.

What

was

th
e

solution?

3.

Expla
i
n

why

was

this

solution

imp
l
em
e
nted?

4.

D
o

you

feel

this

solution

was

rational

from

an

economic

cos
t
‐b
e
nefit

persp
e
ctive?

Explain.

5.

How

do

you

f
eel

morally

o
r

personally

a
b
o
ut

this

solution?

Explain.

Practice

Problems



1.


People

respond
..d

t
o

incera
t:ives.

Go"Vemmera..t:










A

ROGUE

ECONOMIST

EXPlORES
THE

HIDDE
N

SIDE

Of

EVERYTHI

INTRODUCTION:
The

Hidden

Side

of
Everything

























1111111
l

Ill

t1

11r1

J


.

1

























AN
D


r

Anyone

livin
g

in

the

Unite
d

States

in

the

earl
y

1990s

and

payin
g

even a

whisper

of

attention

to

the

nightly

news

or

a

daily

paper

could

be
forgiven

for

havin
g

bee
n

scared

out

of

hi
s

ski
n
.

The

culprit

was

crime.

It

had

been

rising

relentlessly a

graph

plotting

the

crime

rate

in

any
American

city

over

recent

decades
looked

like

a

ski

slope

in

profile
-
and

it

seemed

now

to

herald

the
en
d

of

the

worl
d

a
s

w
e

knew

it
.

Death

by

gunfire
,

intentional

an
d

oth
erwise,

had

become

commonplace.

So

too

had

carjacking

and

crack
dealing, robbery

and
rape.

Violent

crime

was

a

gruesome,

constant
companion.

And

things

were

about

to

get

even

worse
.

Much
worse.
Al
l

the

expert
s

were

sayin
g

so.

The

cause

was

the

so
-
called

superpredator.

For

a

time,

he

was

everywhere.

Glowering

from

the

cover

of

newsweeklies
.

Swaggering
his

way

through

foot
-
thick

government

reports.

He

was

a

scrawny,
big
-
city

teenager

with

a

cheap

gun

in

his

hand

and

nothing

in

his
heart

but

ruthlessness
.
There

were

thousands

out

there

just

like

hi
m
,

we

were

told,

a generation

of

killers

about

to

hurl

the

cou
n
t
ry

i
nt
o

deepest

chaos.

I
N

199
5

TH
E

CR
I
M
I
NOLOGIS
T

J
A
M
E
S

A
LA
N

F
O
X

W
R
OT
E

A

R
EPO
R
T

FO
R

TH
E

U.S
.

ATTORNE
Y
G
E
NE
R
A
L

THA
T

G
R
I
M
L
Y

DE
T
AILE
D

TH
E

CO
M
I
N
G

SPIK
E

I
N

M
U
R
-

DER
S

B
Y

T
E
ENAG
E
RS
.

F
O
X

P
R
O
P
OS
E
D
OPT
I
MIST
I
C

A
N
D

PESS
I
MIST
I
C

SC
E
N
A
R
IO
S
.

I
N

TH
E

OPTI
M
I
STI
C

S
C
E
NA
R
I
O
,

H
E

B
EL
I
EVE
D
,

TH
E

RAT
E

O
F

TEEN

H
O
M
I
CIDE
S

W
OUL
D

RIS
E

ANO
T
HE
R

1
5

PER
C
EN
T

OV
E
R

TH
E

NEX
T

DECAD
E
;

I
N

TH
E

PESSIMIST
I
C

S
C
ENAR
I
O
,

I
T

W
OUL
D

M
O
R
E

TH
A
N

DO
UBLE
.

"
T
H
E

NEXT

C
R
I
M
E

W
AV
E

W
IL
L

GE
T

S
O

BA
D
,
"

H
E

SAI
D
,

"
TH
A
T

I
T

W
IL
L

MAK
E

199
5

L
O
O
K

LIK
E

TH
E

G
O
O
D

O
L
D

D
A
YS
."

O
TH
E
R

CR
I
M
INOLOGISTS
,

POLITICA
L

S
C
IENTISTS
,

AN
D

SIMILA
R
L
Y

LEA
R
N
E
D

FO
R
E
CASTE
R
S

L
AI
D

OU
T

TH
E

SA
M
E

HOR
R
I
B
L
E

FUTU
R
E
,

A
S

DI
D

P
R
E
SIDENT

C
LINTO
N
.

"
W
E

K
NO
W

WE
'
V
E

G
O
T

ABOU
T

S
I
X

YE
A
R
S

T
O

T
UR
N

THI
S

J
U
VENIL
E

CR
I
M
E

THI
N
G

A
R
O
U
N
D
,
"

C
L
INTO
N

S
AID
,

"
O
R

O
U
R

C
O
UN
T
R
Y

I
S

G
OIN
G

T
O

BE
LIVIN
G

W
IT
H

CH
A
OS
.

A
N
D

M
Y

S
UCCESS
O
R
S

W
IL
L

NO
T

B
E

G
I
VIN
G

S
PEECHE
S

A
B
O
U
T

T
H
E

W
ONDERFU
L
OP
P
ORTUNITIE
S

O
F

TH
E

GLOB
A
L

ECO
NO
M
Y
;

THE
Y
'
LL
B
E

TRYIN
G

T
O

KEE
P

BOD
Y

AN
D

SOU
L

TOGETH
E
R
FO
R

P
E
OPL
E

O
N

TH
E

S
T
REET
S

O
F

THES
E

C
ITIE
S
.
"

T
H
E

S
M
A
R
T

M
O
NE
Y

W
A
S

PLAINL
Y

O
N

TH
E

CR
I
M
I
NALS
.


A
N
D

THE
N
,

I
NSTEA
D

O
F

GOI
N
G

U
P

A
N
D

U
P

A
N
D

UP
,

CR
I
M
E

BEGA
N

T
O

F
A
LL
.

A
N
D

FA
L
L

AN
D

FA
L
L

AN
D

F
AL
L

S
O
M
E

M
O
RE
.

T
H
E

CR
I
M
E

DRO
P

W
A
S

STARTL
I
NG
I
N

SEVERA
L

RESP
E
CT
S
.

I
T

W
A
S

UBI
Q
UITO
U
S
,

W
I
T
H

EVER
Y

CATEGO
R
Y
O
F

C
R
I
M
E

FALLIN
G

I
N

EV
E
R
Y

PA
R
T

O
F

T
H
E

C
O
UN
T
R
Y
.

I
T

W
A
S

PE
R
SISTENT
,

WITH

INC
R
E
M
EN
T
A
L

D
E
CR
EASE
S
YEA
R

AFTE
R

YEA
R
.

A
N
D

I
T

W
A
S

ENTI
R
EL
Y

UNANTI
C
IPA
T
ED

ESP
E
CIALL
Y

B
Y

T
H
E

VER
Y

E
XP
ERT
S

W
H
O

HA
D

BEE
N

PR
EDICTI
N
G
TH
E

OPPOS
I
TE
.


T
H
E

MA
G
N
I
TUD
E

O
F

T
H
E

REVERSA
L

W
A
S

ASTO
U
NDI
N
G
.

T
H
E

TEENAG
E

MURDE
R

RA
T
E
,

INSTEA
D

O
F

RIS
I
N
G

10
0

PER
C
EN
T

O
R

EV
E
N

1
5

PERC
E
N
T

A
S

J
AM
E
S
A
LA
N

F
O
X

H
A
D

W
ARN
E
D
,

FEL
L

M
O
R
E

THA
N

5
0

PER
C
EN
T

W
I
THI
N

FIV
E

YEA
R
S
.

B
Y

200
0

TH
E

OVE
R
AL
L

M
U
RDE
R

R
AT
E

I
N

TH
E

U
NIT
E
D

S
TATE
S

H
A
D

DR
OPP
E
D
T
O

IT
S

LOWES
T

LEVE
L

I
N

THI
R
T
Y
-
F
I
V
E

YE
A
R
S
.

S
O

H
A
D

TH
E

RAT
E

O
F

JU
S
T

AB
O
U
T

E
V
ER
Y

O
T
HE
R

SOR
T

O
F

CR
I
ME
,

F
R
O
M

ASSAUL
T

T
O

C
A
R

THEF
T
.


E
VE
N

T
H
O
U
G
H

TH
E

EX
P
ERT
S

H
A
D

F
AILE
D

T
O

ANTI
C
IPAT
E
TH
E

C
R
I
M
E

D
R
O
P


W
HIC
H

W
A
S

I
N

FAC
T

W
EL
L

UNDE
R

W
A
Y

EVE
N

A
S

TH
E
Y

MAD
E

TH
E
I
R
H
O
RRIFY
I
N
G

PRED
I
C
TI
O
NS

TH
E
Y

NO
W

HU
RR
I
E
D

T
O

EXPLA
I
N

IT
.

M
OS
T

O
F

THEI
R

T
H
EO
R
IE
S

SOUNDE
D

P
E
R
F
E
C
TL
Y

LOGICAL
.

I
T

W
A
S

TH
E

R
OA
R
IN
G

1990
S
E
C
O
N
OM
Y
,

THE
Y

SA
I
D
,

THA
T

HELP
E
D

TUR
N

BAC
K

C
R
I
ME
.

I
T

W
A
S

TH
E

P
R
OLIFERATIO
N

O
F

GU
N

CONT
R
O
L

LA
W
S
,

THE
Y

S
AI
D
.

I
T

W
A
S

TH
E

SO
R
T

OF

INNOVAT
IV
E

POLI
C
IN
G

ST
R
AT
E
GIE
S

PU
T

INT
O

PLA
C
E

I
N

N
E
W

Y
OR
K

C
I
TY
,

W
HE
R
E

M
U
RDER
S

WOUL
D

FAL
L

F
R
O
M

2,26
2

I
N

199
0

T
O

54
0

I
N

2005.


T
HES
E

THEO
R
IE
S

W
E
R
E

NO
T

ONL
Y

L
OG
I
C
AL
;

T
H
E
Y

W
ER
E

ALS
O

E
N
C
O
URAGI
N
G
,

F
O
R

THE
Y

AT
T
R
IBUT
E
D

TH
E

CRIM
E

DRO
P

T
O

SPECIF
I
C

AN
D

REC
E
N
T

H
U
M
A
N
INITIATIVE
S
.

I
F

I
T

W
A
S

GU
N

CON
T
RO
L

AN
D

CL
E
V
E
R

P
OLIC
E

STRAT
E
GIE
S
AN
D

BETTE
R
-
PAYIN
G

JO
B
S

T
HA
T

QUELLE
D

C
R
I
M
E

W
EL
L

THE
N
,

TH
E

PO
W
E
R

TO
STO
P

CR
I
M
I
NAL
S
H
A
D

BEE
N

W
I
THI
N

O
U
R

R
E
AC
H

AL
L

ALO
NG
.

A
S

I
T

W
OUL
D

B
E

TH
E

N
E
X
T

TIM
E
,

G
O
D

F
O
RBI
D
,

THA
T

CR
I
M
E

GO
T

S
O

B
A
D
.


T
HES
E

THEO
R
IE
S

MAD
E

THEI
R

W
A
Y
,

SEEMI
N
GL
Y

W
ITHOU
T

FR
ICTIO
N
,

FRO
M

TH
E

EXP
E
R
T
S
'

M
O
UT
H
S

T
O

J
OU
R
N
A
LIST
S
'

EAR
S

T
O

TH
E

PU
B
LIC
'
S

M
I
N
D
.

I
N
SHO
R
T

COU
R
S
E
,

TH
E
Y

BE
C
A
M
E

CONVENTIONA
L

WISDO
M
.

T
HER
E

W
A
S

ONL
Y

O
N
E

PROBL
E
M
:

TH
E
Y

W
E
R
E
N
'
T

T
R
UE
.


T
HER
E

W
A
S

A
N
OTH
E
R

F
AC
T
O
R
,

M
E
A
N
W
HILE
,

THA
T

HA
D

G
R
E
ATL
Y

CON
T
R
IBUTE
D

T
O

TH
E

M
A
SSIV
E

CR
I
M
E

DRO
P

O
F

TH
E

1990
S
.

I
T

H
A
D

TAK
E
N

S
H
AP
E

M
O
RE
THA
N

T
W
ENT
Y

YE
A
R
S

E
ARLI
E
R

A
N
D

C
O
NC
E
R
N
E
D

A

Y
O
U
N
G

W
OMA
N

I
N

D
ALL
A
S

N
A
ME
D

N
ORM
A

M
C
C
O
R
VE
Y
.


L
IK
E

TH
E

PROV
E
RB
I
A
L

BUTTE
R
F
L
Y

THA
T

FLAP
S

IT
S

W
ING
S

O
N

ON
E

C
O
N
T
INEN
T

AN
D

EVENTUALL
Y

C
AUSE
S

A

HUR
R
ICAN
E
O
N

ANO
T
H
E
R
,

N
O
R
MA

M
C
C
ORVE
Y

DRAMAT
IC
ALL
Y

ALTE
R
E
D

TH
E

COURS
E

O
F

EV
E
N
T
S

W
ITHOU
T

INTENDIN
G
T
O
.

A
L
L

SH
E

HA
D

W
ANTE
D

W
A
S

A
N

A
B
O
R
TION
.

S
H
E

W
A
S

A

PO
O
R
,
UNE
DU
C
AT
E
D
,

U
N
SKIL
L
ED
,

AL
C
O
HOLI
C
,

D
R
U
G
-
USIN
G

T
W
ENTY
-
ONE
-
Y
E
A
R
-
OL
D

W
OMA
N

W
H
O

H
A
D

ALR
E
A
D
Y

GIVE
N

U
P

T
W
O

CHILDRE
N
F
O
R

A
DO
PTIO
N
A
ND
NO
W
,

I
N

1970
,

F
O
U
N
D

HE
R
S
EL
F

P
R
E
G
N
AN
T

A
G
AI
N
.

B
U
T

I
N

T
EXAS
,

A
S

I
N

AL
L

BU
T

A

F
E
W

STATE
S

A
T

THA
T

TIM
E
,

AB
ORT
I
O
N
W
A
S

ILLEGAL
.

M
C
C
ORVE
Y

S
C
A
US
E

CAM
E

T
O

B
E

ADOPTE
D

B
Y

PEOPL
E

F
A
R

MOR
E

P
O
W
ERFU
L

TH
A
N

S
H
E
.

T
H
E
Y

MAD
E

H
E
R

T
H
E

LEA
D

PLA
I
NTIF
F
I
N

A

CLAS
S
-
A
C
TIO
N

LA
W
SUI
T
SEEKIN
G

T
O
LEGALIZ
E

A
B
O
R
TIO
N
.

T
H
E

DEFE
ND
AN
T

W
A
S

H
ENR
Y

W
AD
E
,

TH
E

D
AL
L
A
S

C
O
U
NT
Y

DISTR
I
C
T

A
T
TORNEY
.

T
H
E

C
AS
E

ULT
I
M
ATE
L
Y

MAD
E

I
T

T
O

TH
E

U.S.
S
U
P
R
E
M
E

C
O
U
RT
,

B
Y

WHIC
H

TI
M
E

M
C
C
O
R
VE
Y
'
S

N
A
M
E

HA
D

BEE
N

DIS
G
UISE
D
A
S

J
A
N
E

R
OE
.

O
N

J
AN
UA
R
Y

22
,

1973
,

TH
E

C
OU
R
T

R
U
LE
D

I
N

FAVO
R

O
F

M
S
.

R
OE
,

AL
L
OW
IN
G
LEG
A
LIZE
D

ABORTIO
N
T
H
R
OU
G
H
OU
T

TH
E

U
NITE
D

S
T
A
TES
.

B
Y

TH
I
S

TI
M
E
,

O
F

CO
U
R
SE
,

I
T

WA
S

FA
R

TO
O

LAT
E

FO
R

M
S
.

M
C
C
O
R
VE
Y
/
R
OE
T
O

H
A
V
E

H
E
R

A
B
O
R
TI
ON
.

S
H
E

H
A
D

G
IVE
N

B
I
RT
H

A
N
D

PU
T

T
H
E

CHIL
D

U
P

FO
R

A
D
OPT
I
ON
.

(
Y
E
AR
S

LATE
R

SH
E

W
OUL
D

R
ENOUN
C
E

H
E
R

ALLEGIANC
E

TO

LEGALIZE
D

AB
O
R
TIO
N

A
N
D

BEC
O
M
E

A

PRO
-
LIF
E

A
C
T
I
VIST
.)


S
O

H
O
W

DI
D

R
O
E

V
.

W
AD
E

HEL
P

T
R
I
GG
E
R
,

A

G
E
NERATIO
N

L
ATE
R
,

TH
E

G
R
EATES
T

C
R
I
M
E

D
R
O
P

I
N

R
ECORDE
D

HISTO
R
Y
?
A
S

FA
R

A
S

CRI
M
E

I
S

CONCE
R
N
E
D
,

IT
TURN
S

O
U
T

THA
T

N
O
T

A
L
L

CHIL
D
R
E
N
A
R
E

B
O
R
N

EQUA
L
.

N
O
T

EVE
N

C
LOSE
.

D
ECAD
E
S

O
F

ST
U
DIE
S

HAV
E

S
H
O
W
N

THA
T

A

CHI
L
D

BOR
N

INT
O

A
N

A
D
VERSE

FA
M
IL
Y

ENVI
R
ON
M
EN
T

I
S

FA
R

M
OR
E

LIKEL
Y

THA
N

OTH
E
R

CHILD
R
E
N
T
O

BE
C
O
M
E

A

CRI
M
INA
L
.

A
N
D

TH
E

M
ILL
I
ON
S

O
F

W
O
M
E
N

M
O
S
T

LIKEL
Y

T
O

HAV
E

AN
AB
O
R
TIO
N
I
N

TH
E

W
AK
E

O
F

R
O
E

V
.

W
A
DE

PO
O
R
,

U
N
MARRIED
,

AN
D

T
EENAG
E

MOTHER
S

F
O
R

W
HO
M

ILLEGA
L

ABORT
I
ON
S

HA
D

B
E
E
N

TO
O

EX
P
ENSIV
E
OR
TO
O

H
AR
D

T
O

GET

W
E
R
E

OFTE
N

MODEL
S

O
F

A
DV
E
RSIT
Y
.

T
HE
Y

W
ER
E

TH
E

VER
Y

W
OM
E
N

W
HOS
E

CHIL
D
R
EN
,

I
F

B
O
RN
,

W
OUL
D

H
A
V
E

BEE
N

M
U
C
H

M
O
RE

LIKEL
Y

THA
N

AV
E
R
A
G
E

T
O

B
E
C
O
M
E

C
R
I
M
I
NALS
.

B
U
T

B
E
CA
U
S
E

O
F

R
O
E

V
.

W
A
DE
,

THES
E

C
HILDRE
N

W
E
R
E
N
'
T

BEIN
G

B
OR
N
.

T
HI
S

P
O
W
ERFU
L

C
A
U
S
E

W
OULD
H
A
V
E

A

D
R
A
STIC
,

DIS
T
AN
T

EFFEC
T
:

YEA
R
S

LAT
E
R
,

JUS
T

A
S

THES
E

UNBO
R
N

C
HI
L
D
R
E
N
W
OUL
D

HAV
E

ENT
E
R
E
D

THEI
R

CR
I
M
INA
L

P
R
I
MES
,

TH
E

R
A
T
E

OF

C
R
I
M
E

B
EGA
N

T
O

PLUM
M
E
T
.


I
T

W
ASN
'
T

G
U
N

C
O
NTR
O
L

O
R

A

S
T
R
O
N
G

ECO
NO
M
Y
O
R

NE
W

POLIC
E

S
T
R
A
TEGIE
S

TH
A
T

FINALL
Y

BLUNTE
D

TH
E

A
M
E
R
I
C
A
N

C
RIM
E

W
A
VE
.

I
T

W
AS
,

AM
O
NG
OTH
E
R

F
A
C
T
OR
S
,

TH
E

R
E
ALIT
Y

THA
T

TH
E

POO
L

O
F

POTENTI
A
L

CR
I
MI
N
A
L
S
HA
D

D
R
A
M
AT
I
C
AL
L
Y

SHR
U
N
K
.


N
O
W
,

A
S

TH
E

CR
I
M
E
-
DRO
P

EXP
E
RT
S

(
TH
E

FOR
M
E
R

C
R
I
M
E

DOOMSAYER
S
)

SPU
N

T
HEI
R

THEO
R
IE
S

T
O

TH
E

M
E
DI
A
,

HO
W

M
A
N
Y

TIM
E
S

D
I
D

THE
Y

CIT
E

LEGA
L
-

IZE
D

ABOR
T
IO
N
A
S

A

C
A
USE
?

Z
E
R
O
.


I
T

I
S

TH
E

QUINTESSENT
I
A
L

BLE
N
D

O
F

C
O
MM
E
RC
E

AN
D

C
A
MARAD
E
RIE
:

Y
O
U

HIR
E

A

REAL
-
ESTA
T
E

AGEN
T

T
O

SEL
L

YOU
R

HO
M
E
.

S
H
E

SIZE
S

U
P

IT
S

C
H
ARM
S
,

SNA
P
S

SOM
E

PICTURES
,

SET
S

TH
E

P
R
I
C
E
,

W
R
ITE
S

A

SED
U
CTI
V
E

AD
,

S
H
O
W
S

TH
E

HO
US
E

AG
G
RESS
I
VEL
Y
,

N
E
GOTIATE
S

TH
E

OFF
E
R
S
,

AN
D

SEE
S

TH
E

DEAL

THROUG
H

T
O

IT
S

END
.

S
URE
,

I
T
'
S

A

LO
T

O
F

W
O
RK
,

BU
T

SH
E
'
S

GETTIN
G

A

NI
C
E

CUT
.

O
N

TH
E

SAL
E

O
F

A

$300,00
0

H
O
USE
,

A

TYPICA
L

6

PER
C
EN
T

AGEN
T

FEE
YIELD
S

$18,000
.

E
I
G
H
T
EE
N

THO
US
A
N
D
DOL
L
A
RS
,

Y
O
U

SA
Y

T
O

Y
OUR
SELF
:

THAT
'
S

A

LO
T

O
F

MONE
Y
.

B
U
T

YO
U

ALS
O

T
EL
L

YOU
R
S
E
L
F
THA
T

YO
U

NEV
E
R
C
O
UL
D

H
A
V
E

SOL
D

TH
E

H
O
US
E

F
O
R

$300,00
0

O
N

Y
OU
R

O
W
N
.

T
H
E

A
G
E
N
T

KNE
W

HO
W

T
O

W
HA
T
'
S

THA
T

P
HRAS
E

SH
E

USE
D
?

"
MAX
I
MIZ
E

T
H
E

HOUS
E
'
S
VALU
E
.
"

S
H
E

GO
T

Y
O
U

TO
P

DOL
L
AR
,

RI
G
HT
?

R
IGH
T
?


A

REAL
-
ES
T
AT
E

AGEN
T

I
S

A

DIFF
E
R
E
N
T
BREE
D

O
F

EXPER
T

T
H
A
N

A

CRIM
I
NOL
O
GIS
T
,

B
U
T

SH
E

I
S

EVER
Y

B
I
T

TH
E

EXPE
R
T
.

T
HA
T

IS
,

SH
E

K
N
O
W
S

HE
R

FIELD
FA
R

BE
T
TE
R

THA
N

TH
E

L
A
Y
M
A
N

O
N

W
HOS
E

BE
H
AL
F

SH
E

I
S

A
C
TI
N
G
.

S
H
E

I
S

B
ETTE
R

I
NFOR
M
E
D

A
B
OU
T

TH
E

HOUSE
'
S

VA
L
UE
,

TH
E

ST
A
T
E

O
F

TH
E

HOUS
I
NG
M
AR
KET
,

EVE
N

TH
E

B
UYE
R

S

FRA
M
E

O
F

M
I
ND
.

Y
O
U

DEP
E
N
D

O
N

H
E
R

F
O
R

THI
S

INF
O
RM
A
TIO
N
.

T
H
AT
,

I
N

FACT
,

I
S

W
H
Y

Y
O
U

HIR
E
D

A
N

EXPER
T
.


A
S

TH
E

W
ORL
D

H
A
S

GR
O
W
N

M
O
R
E

SPECIALIZ
E
D
,

COUNTLES
S

SUC
H

EX
P
ERT
S

H
AV
E

M
A
D
E

TH
E
MSELVE
S

SIM
I
LAR
L
Y
IND
I
SPEN
S
ABL
E
.

D
O
C
TO
R
S
,

LA
W
YE
R
S
,
C
ON
T
R
A
C
T
O
R
S
,

S
T
OC
KB
R
O
KERS
,

AU
T
O

M
E
C
H
A
N
ICS
,

M
O
RT
G
AG
E

BROK
E
R
S
,

F
I
N
A
NC
I
A
L
PLA
N
NERS
:

THE
Y

AL
L

ENJ
O
Y

A

G
I
G
A
NTI
C

IN
F
ORMATI
O
N
A
L
A
D
V
A
NTA
GE
.

A
N
D

T
HE
Y

US
E

THA
T

A
D
V
A
NTA
G
E

T
O

HEL
P

YO
U
,

TH
E

P
E
RSO
N

W
H
O

H
I
RE
D

TH
E
M
,

GE
T

EXA
C
TL
Y

W
HA
T

YO
U

W
AN
T

FO
R

TH
E

B
ES
T

P
R
I
CE
.
R
IGH
T
?


I
T

W
OUL
D

B
E

LOVEL
Y

T
O

THIN
K

S
O
.

B
U
T

EXP
E
RT
S

AR
E

HU
MAN
,

A
N
D

H
U
M
A
N
S

RES
P
O
N
D

T
O

I
N
CENTIVES
.

H
O
W

AN
Y

GI
V
E
N

EXPER
T

TREAT
S

Y
O
U
,

THE
R
EFO
R
E
,

W
IL
L

DEPEN
D

O
N

H
O
W

THA
T

EXP
E
RT
'
S

IN
C
E
NTIVE
S
A
R
E

SE
T

UP
.

S
O
M
ET
I
ME
S
HI
S

IN
CENTIVE
S

M
A
Y

W
OR
K

I
N

Y
O
U
R

F
A
VO
R
.

F
O
R

I
N
S
T
A
N
CE
:

A
STU
D
Y

O
F

C
ALIFO
R
N
I
A
AUT
O

M
E
C
H
AN
I
C
S

FOUN
D

THE
Y

OF
T
E
N

PASS
E
D

U
P

A

S
M
AL
L

R
EPA
I
R

B
IL
L

B
Y

LETTIN
G

FAILIN
G

C
A
R
S

PAS
S

E
M
I
SSIONS

INSPECT
I
ONS

TH
E

R
E
A
SO
N

BEI
N
G

THAT

LENIEN
T

M
E
C
H
AN
I
C
S

AR
E

RE
W
ARD
E
D

W
IT
H

REPEA
T

B
U
SIN
E
SS
.

B
U
T

I
N

A

DIFFEREN
T
CAS
E
,

A
N

E
X
PER
T
'
S

I
N
C
E
NTIVE
S
M
A
Y

W
OR
K

A
GA
I
NS
T

Y
O
U
.

I
N

A
MED
I
CA
L

S
T
U
D
Y
,

I
T

TURNE
D

OU
T

THA
T

OBSTETRI
C
IAN
S

I
N

A
R
EA
S

W
IT
H

DE
C
LIN
I
N
G

B
I
R
T
H

RAT
E
S

A
R
E

M
U
C
H

M
O
R
E

LIK
E
L
Y

T
O

PE
R
F
OR
M

C
ESAREA
N
-

SECTI
O
N

D
E
LIVERIE
S

T
H
A
N

O
B
STE
T
RICI
A
N
S

I
N

G
R
O
W
IN
G

AR
EAS

S
U
G
G
ESTIN
G

T
HAT
,

W
HE
N

BUSINES
S

I
S

TOUGH
,

D
O
C
T
O
R
S

TR
Y

T
O

RIN
G

U
P

MORE

EXPENS
I
V
E

P
R
O
C
E
DU
R
E
S
.


I
T

I
S

ON
E

THIN
G

T
O

M
US
E

A
B
OU
T

EXPE
R
T
S
'

AB
U
S
IN
G

THE
I
R

P
OSITIO
N

A
N
D

A
N
OTH
E
R

T
O

PROV
E

I
T
.

T
H
E

BES
T

W
A
Y

T
O

D
O

S
O

W
OUL
D

B
E

T
O

MEA
SU
R
E

HOW
A
N

EXP
E
R
T

TREAT
S

Y
O
U

VER
S
U
S

HO
W

H
E

PE
R
FOR
M
S
TH
E

SA
M
E

SERV
I
C
E

FO
R

H
I
MSELF
.

U
NFO
R
TUNATEL
Y

A

SURGEO
N

DOES
N
'
T

OP
E
R
AT
E

O
N

H
I
MSELF
.

N
OR
I
S

HI
S

M
E
DI
C
A
L

FIL
E

A

M
ATT
E
R

O
F

PU
B
L
I
C

R
ECOR
D
;

NEIT
H
E
R

I
S

A
N

A
U
T
O

M
E
C
H
A
N
I
C
'
S
REPA
I
R

LO
G

F
O
R

HI
S

O
W
N

CAR
.


R
EAL
-
ESTAT
E
SALES
,

H
O
W
EVE
R
,

A
R
E

A

MA
TT
E
R

O
F

P
U
B
L
I
C

R
E
C
O
R
D
.

A
N
D

REAL
-
ESTAT
E

AGEN
T
S

OFTE
N

D
O

SEL
L

THEI
R

O
W
N

HO
M
E
S
.

A

R
E
CEN
T

SE
T

OF
DAT
A

C
O
V
E
RIN
G
TH
E

S
A
L
E

O
F

NE
AR
L
Y

100,00
0

H
O
USE
S

I
N

S
UB
U
RBA
N

C
HICA
G
O

S
HO
W
S

THA
T

MOR
E

T
H
A
N

3,00
0

O
F

T
HO
S
E

HO
U
SE
S

W
ER
E

O
W
NE
D

B
Y

THE
AGENT
S

T
H
E
MSELVES
.


B
EFO
R
E

PLUNGIN
G
INT
O

TH
E

DATA
,

I
T

HELP
S

T
O

AS
K

A

QUE
S
TION
:

W
HA
T

I
S

TH
E

R
EA
L
-
ESTAT
E

AGEN
T
'
S

IN
C
E
NTIV
E
W
H
E
N

SH
E

I
S

SELLIN
G

H
E
R

O
W
N

HO
M
E
?
S
I
M
PLE
:

T
O

MAK
E

TH
E

BES
T

DEA
L

POSS
I
BL
E
.

P
RESU
M
A
B
L
Y
THI
S

I
S

ALS
O

YOU
R

IN
C
ENTIV
E

W
H
E
N

YO
U

A
R
E

SELLIN
G

YOU
R

HO
M
E
.

A
N
D

S
O

Y
OU
R

INCENT
I
V
E
A
N
D

TH
E

R
E
A
L
-
ESTAT
E

AGEN
T
'
S

I
N
CENTIV
E
W
O
UL
D

SE
E
M

T
O

B
E

N
I
CEL
Y

ALIGNED
.

H
E
R

COM
M
ISSION
,

AFTE
R

ALL
,

I
S

B
A
SE
D

O
N

TH
E

SAL
E

P
R
I
C
E
.


B
U
T

A
S

I
NCENTIVE
S

G
O
,

C
OM
M
ISSI
ON
S

A
R
E

T
R
I
C
K
Y
.

F
I
R
S
T

O
F

ALL
,

A

6

PER
C
EN
T

R
E
AL
-
ESTAT
E

C
O
M
M
ISS
I
O
N

I
S

TYPICALL
Y
SPLI
T

BE
T
W
EE
N

TH
E

SELLE
R
'
S
AGEN
T

A
N
D

TH
E

B
U
YE
R
'
S
.

E
A
C
H

AG
EN
T

THE
N

K
I
CK
S

BAC
K

RO
U
GHL
Y

H
A
L
F

O
F

HE
R

T
AK
E

T
O

TH
E

AGE
NC
Y
.

W
HIC
H

M
E
AN
S

THA
T

ON
L
Y

1.
5

PER
C
EN
T

O
F

THE
PURCHAS
E
P
R
IC
E

GOE
S

D
IRECT
L
Y

IN
T
O

Y
OU
R

AG
E
NT
'
S

POCKE
T
.


S
O

O
N

TH
E

SAL
E

O
F

YOU
R

$300,00
0

H
O
US
E
,

H
E
R

PER
S
O
N
A
L
TAK
E

O
F

TH
E

$18,00
0

COMMISS
I
O
N

I
S

$4,500
.

S
T
I
L
L

NO
T

B
A
D
,

YO
U

S
A
Y
.

B
U
T

W
HA
T

I
F

THE
H
O
US
E

W
A
S

AC
T
UALL
Y

W
ORT
H

M
O
R
E

THA
N

$300,000
?

W
H
A
T

I
F
,

W
IT
H

A

LITTL
E

MOR
E

EF
F
OR
T

AN
D

P
ATIENC
E

AN
D

A

FE
W

MOR
E

NE
W
SPAPE
R
ADS
,

S
H
E
C
O
UL
D

H
A
V
E

SOL
D

I
T

FO
R

$310,000
?

A
FTE
R

TH
E

C
O
M
M
ISSION
,

T
H
A
T

P
UT
S

A
N

A
DD
ITIONA
L

$9,40
0

I
N

YOU
R

POCKE
T
.

B
U
T

TH
E

AGEN
T
'
S

A
D
DI
T
IONAL
SHARE

-
HE
R
PE
R
S
O
NA
L

1.
5

PER
C
EN
T

O
F

TH
E

EXTR
A

$10,000

I
S

A

M
ER
E

$150
.

I
F

Y
O
U

EAR
N

$9,40
0

W
HI
L
E

SH
E

EARN
S

ONL
Y

$150
,

M
A
Y
B
E

Y
O
UR
INC
E
NTIVE
S
AR
E
N
'
T

AL
I
GNE
D

AFTE
R

ALL
.

(E
SPE
C
IALL
Y
W
HE
N

SH
E
'
S

TH
E

ON
E

P
A
YI
N
G

FO
R

TH
E

A
D
S

AN
D

DO
IN
G

AL
L

TH
E

W
OR
K
.
)

I
S

TH
E

AG
E
N
T

WILLIN
G

TO
PU
T

OU
T

A
L
L

THA
T

EXT
R
A

T
I
M
E
,

MONE
Y
,

A
N
D

ENERG
Y

FO
R

JUS
T

$150?


T
HER
E
'
S

ON
E

W
A
Y

T
O

FIN
D

O
U
T
:

M
E
ASU
R
E

TH
E

DIFFE
R
E
N
C
E
B
ET
W
EE
N

T
H
E

SALE
S

DAT
A

FO
R

HOUSE
S

THA
T

B
ELON
G

T
O

R
EA
L
-
ESTA
T
E

AGENT
S

T
HEMSELVES
AN
D

TH
E

HOUSE
S

THE
Y

SOL
D

O
N

B
E
H
A
L
F

O
F

C
L
IE
NT
S
.

U
S
I
N
G

TH
E

DAT
A

F
R
O
M

TH
E

SALE
S

O
F

THOS
E

100,00
0

C
HICA
G
O

H
O
MES
,

A
N
D

CON
T
ROLLI
N
G

F
O
R

A
N
Y

N
U
MB
E
R

O
F

VA
R
I
A
BLE
S

LOCATION
,

AG
E

A
N
D

Q
U
ALIT
Y

O
F

TH
E

HO
US
E
,

AES
T
HETI
C
S
,

W
HETHE
R

O
R

NO
T

TH
E

P
R
OP
E
R
T
Y

W
A
S

A
N

INVES
T
M
EN
T
,

AN
D

S
O
ON

I
T

T
U
RN
S

OU
T

T
HA
T

A

REAL
-
E
S
TAT
E

AGEN
T

KEEP
S

HE
R

O
W
N

HOM
E

O
N

TH
E

M
A
RKE
T

A
N

A
V
E
R
A
G
E

OFTE
N

DAY
S

L
O
NG
E
R

A
N
D

SE
L
L
S

I
T

FO
R

A
N

EXTRA

3
-
PLU
S

PERCENT
,

O
R

$10,00
0

O
N

A

$300,00
0

H
OUSE
.

W
H
E
N

SH
E

SELL
S

HE
R

O
W
N

HOUS
E
,

A
N

AGEN
T

HOLD
S

OU
T

FO
R

T
H
E

B
ES
T

OFFER
;

W
HE
N

SH
E

SELLS
Y
O
URS
,

SH
E

ENCO
U
R
A
G
E
S

YO
U

T
O

T
A
K
E

TH
E

FIR
S
T

DECEN
T

O
FFE
R

T
H
A
T

C
O
ME
S

AL
O
N
G
.

L
I
K
E

A

STOC
K
B
RO
K
E
R

CH
U
R
N
IN
G
COMM
I
SS
I
ON
S
,

SH
E

WANT
S

TO
M
A
K
E

DEA
L
S

AN
D

MAK
E

THE
M

F
A
ST
.

W
H
Y

NOT
?

H
E
R

SHA
R
E

O
F

A

B
ETT
E
R

OFF
E
R

$150

I
S

TO
O

PUN
Y

A
N

IN
C
E
NTIV
E

T
O

ENCOURAG
E

HE
R

T
O

DO
OTH
E
R
W
IS
E
.


O
F

AL
L

TH
E

T
R
UIS
M
S

ABOU
T

POLIT
I
C
S
,

ON
E

I
S

H
E
L
D

T
O

B
E

TRUE
R

T
H
A
N

T
H
E

RES
T
:

MONE
Y

B
U
Y
S

ELE
C
TION
S
.

A
RNO
L
D

S
CH
W
A
R
ZEN
E
GG
E
R
,

M
ICHAEL

B
LOOM
B
E
RG
,

J
O
N

C
ORZI
NE

THES
E

A
R
E

BU
T

A

F
E
W

R
E
C
ENT
,

DRA
M
AT
I
C
EXAMPLE
S

O
F

TH
E

T
R
UIS
M

A
T

W
OR
K
.

(
D
I
S
RE
G
A
R
D
F
O
R

A

M
O
M
E
N
T

T
H
E
C
O
NTRA
R
Y

EXA
M
PLE
S

O
F

S
TEV
E

F
ORBES
,

M
IC
HAE
L

H
UFF
I
NGT
O
N
,

AN
D

ESPE
C
I
ALL
Y

T
H
O
MA
S

G
OLIS
A
N
O
,

W
H
O

OVE
R

TH
E

C
OU
R
S
E

O
F

TH
R
EE

GU
B
ERNA
T
O
R
IA
L

ELE
C
T
I
ON
S
I
N

N
E
W

Y
O
R
K

SPEN
T

$9
3

MILLIO
N

O
F

HI
S

O
W
N

MONE
Y

A
N
D

W
O
N

4

PERCENT
,

8

PERCENT
,

A
N
D

1
4

P
E
RCENT
,

RESP
E
CTIVELY
,

O
F

TH
E

VO
T
E
.
)

M
OS
T

PEOPL
E

W
OUL
D

A
G
RE
E

T
H
A
T

MONE
Y

HA
S

A
N

U
N
D
U
E

INFLU
E
N
C
E

O
N

EL
E
CTION
S
A
N
D

THA
T

F
A
R

T
O
O

M
U
C
H

MONE
Y

I
S

SP
E
N
T

ON
POLITICA
L
CAMPA
I
GN
S
.


I
NDEE
D
,

E
L
ECTIO
N

DA
T
A

SHO
W

I
T

I
S

TRU
E

T
HA
T

TH
E

CA
ND
IDAT
E

W
H
O

SPEN
D
S

M
O
R
E

MON
E
Y

I
N

A

C
A
MPA
I
G
N
U
S
UAL
L
Y

W
IN
S
.

B
U
T

I
S

MON
E
Y

TH
E

C
A
USE
O
F

TH
E

V
I
C
T
ORY
?


I
T

M
IGH
T

S
E
E
M

LOG
I
CA
L

T
O

THIN
K

S
O
,

M
U
C
H

A
S

I
T

MIGH
T

HA
V
E

SEEME
D

LOG
I
CA
L

T
H
A
T

A

BO
O
M
I
N
G

199
0
S

E
C
ONOM
Y

H
E
LPE
D

R
EDUC
E

CR
I
M
E
.

B
U
T

J
UST
B
ECAUS
E

T
W
O

THING
S

A
R
E

C
O
R
R
ELATE
D

DOE
S

NO
T

MEA
N

T
HA
T

O
N
E

C
A
USE
S

TH
E

O
THE
R
.

A

COR
R
ELATIO
N

SI
M
P
L
Y

M
E
AN
S

THA
T

A

RELATIONSH
I
P

EXISTS
B
ET
W
EE
N

T
W
O

FA
C
TORS

LET
'
S

C
A
L
L

THE
M

X

A
N
D

Y


BU
T

I
T

TELL
S

YO
U

NO
T
H
I
N
G

ABOU
T

T
H
E

DI
R
E
C
T
I
O
N
O
F

T
HA
T

R
ELATIONSHIP
.

I
T
'
S

PO
S
SIBL
E

THAT

.^
C
A
USE
S

Y
;

IT
'
S

AL
S
O

POSS
I
BL
E

THA
T

F

CAUS
E
S

X
;

A
N
D

I
T

M
A
Y

B
E

T
HA
T

X
A
N
D

F
A
R
E

B
OT
H

BEIN
G

C
A
USE
D

B
Y

SO
M
E

O
T
HE
R

F
AC
T
O
R
,

Z.


T
HIN
K

A
B
OU
T

THI
S

COR
R
ELATIO
N
:

C
ITIE
S

W
IT
H

A

LO
T

O
F

MURDER
S

ALS
O

TEN
D

T
O

HAV
E

A

LO
T

O
F

POLI
C
E

OFF
I
C
E
R
S
.

C
ONS
I
DE
R

NO
W

TH
E

POLI
C
E
/
MU
R
D
E
R
C
O
RR
E
LATIO
N

I
N

A

P
A
I
R

O
F

REA
L

CITIES
.

D
EN
V
E
R

A
N
D

W
AS
HI
N
G
TO
N
,

D.C
.
,

H
A
V
E

ABOU
T

TH
E

S
A
M
E

PO
P
U
L
ATIO
N

BU
T

W
A
S
HI
NG
TO
N

H
A
S

N
E
AR
L
Y

TH
R
E
E

TI
M
E
S

A
S

MAN
Y

POLI
C
E

A
S

D
ENV
E
R
,

AN
D

I
T

ALS
O

HA
S

EIGH
T

TI
M
E
S

TH
E

NUM
B
E
R

O
F

M
U
RDERS
.

U
NLES
S

Y
O
U

H
A
V
E

M
O
R
E

IN
F
ORM
A
TION
,
HO
W
EVE
R
,

IT
'
S

H
A
R
D

T
O

SA
Y

W
HAT
'
S

C
A
USI
N
G

W
HA
T
.

S
OMEON
E

W
H
O

DID
N
'
T

KNO
W

B
ETTE
R

MIGH
T

CONTE
M
P
L
AT
E

THES
E

FIGU
R
E
S

AN
D

CON
C
L
UD
E

THAT
I
T

I
S

AL
L

THOS
E

EXTR
A

POLI
C
E

I
N

W
A
SH
I
NG
T
O
N

W
H
O

AR
E

CA
U
SI
N
G

TH
E

EXTR
A

MURDER
S
.

S
U
C
H

W
AY
W
AR
D
TH
I
N
K
I
N
G
,

W
HIC
H

H
A
S

A

L
O
N
G

HIST
O
R
Y
,

GEN
E
RALL
Y
PR
O
V
O
KE
S

A

W
A
Y
W
AR
D
RES
P
O
N
S
E
.

C
ONSID
E
R

TH
E

FOLK
T
A
L
E
O
F

TH
E

CZA
R

W
H
O

LEARNE
D

THA
T

TH
E

M
OS
T

DISEASE
-
R
I
DDE
N

PR
OV
I
NC
E
I
N

HIS
E
M
P
I
R
E

W
A
S

ALS
O

TH
E

P
R
OVIN
C
E

W
I
T
H

TH
E

MOS
T

DO
C
T
O
RS
.

H
I
S

SO
L
UTION
?

H
E

PR
O
M
PTL
Y

OR
D
ERE
D

AL
L

T
H
E

D
O
CT
OR
S

SHO
T

D
E
A
D
.


N
O
W
,

RET
U
RN
I
N
G

T
O

T
H
E

ISSU
E

O
F

C
A
M
P
AI
G
N
S
PEND
I
N
G
:

I
N

ORDE
R

T
O

FIGU
R
E

OU
T

TH
E

R
ELAT
I
ONSHI
P

B
E
T
W
EE
N

M
O
NE
Y

AN
D

ELECTION
S
,

I
T

H
E
LP
S

TO

C
ON
SIDE
R
T
H
E

INC
E
NTIVE
S

A
T

PL
A
Y

I
N

C
A
MPA
I
G
N
FI
N
A
N
C
E
.

L
ET
'
S

S
A
Y

Y
O
U

A
R
E

T
H
E

KIN
D

O
F

PERS
O
N

W
H
O

MI
G
H
T

CO
N
TRIBUT
E

$

1,00
0

T
O

A

CA
N
DIDATE
.
C
H
A
N
C
E
S

A
R
E

Y
OU
'
L
L

G
IV
E

TH
E

M
O
NE
Y

I
N

O
N
E

O
F

T
W
O

SITUATI
O
N
S
:

A

CLOS
E

R
A
C
E
,

I
N

W
HI
C
H

YO
U

THIN
K

TH
E

M
O
NE
Y

WIL
L

INFLUEN
C
E

TH
E

OUTCO
M
E
;

O
R

A

CAMP
A
IG
N
I
N

W
HIC
H

ON
E

C
A
N
D
IDAT
E

I
S

A

S
UR
E

W
INNE
R

A
N
D

Y
O
U

W
OU
L
D

LIK
E

T
O

BA
S
K

I
N

REFL
E
C
TE
D

GL
O
R
Y

O
R

RECEIV
E

SO
M
E

FU
T
UR
E

I
N
-
KI
N
D
CONSID
E
R
ATION
.

T
H
E

O
N
E

C
A
ND
I
D
A
T
E

YO
U

W
O
N
'
T

CON
T
R
I
B
UT
E

T
O

I
S

A

SU
R
E

LOSE
R
.

(J
US
T

A
S
K

A
N
Y

P
R
E
SIDENTIA
L

HOPE
F
U
L

W
H
O

B
O
MB
S

I
N

I
O
W
A

AND
N
E
W

H
AM
P
SHIR
E
.
)

S
O

F
R
O
NT
-
RUNNE
R
S

AN
D

IN
C
U
M
B
ENT
S
R
AIS
E

A

LO
T

M
O
R
E

M
ONE
Y

THA
N

LON
G

SHOT
S
.

A
N
D

W
HA
T

ABOU
T

SP
E
N
DIN
G

T
HA
T

M
O
NEY
?
I
NCUMB
E
N
T
S

AN
D

FR
O
NT
-
RU
N
N
E
R
S

OBVI
O
USL
Y
H
A
V
E

MOR
E

CA
S
H
,

B
U
T

T
HE
Y

ONL
Y

SPEN
D

A

LO
T

O
F

I
T

W
H
E
N

THE
Y

STAN
D

A

LEGITIMAT
E

C
H
ANC
E

OF

LOSIN
G
;

OTHER
W
IS
E
,

W
H
Y

DI
P

I
NT
O

A

W
A
R

CH
E
S
T

THA
T

M
I
GH
T

B
E

M
O
R
E

USEFU
L

LATE
R

O
N
,

W
HE
N

A

M
O
R
E

FORM
I
D
A
B
L
E

OPP
O
NEN
T

APPE
A
RS
?


N
O
W

PI
C
TU
R
E

T
W
O

C
ANDIDATE
S
,

O
N
E

INTR
I
NS
I
CAL
L
Y

APP
E
ALIN
G
A
N
D

TH
E

OTH
E
R

NO
T

SO
.

T
H
E

APPEALI
N
G

CA
N
DIDA
T
E

RAISE
S

M
U
C
H

M
O
R
E

MONE
Y

A
N
D
WIN
S

EASIL
Y
.

B
U
T

W
A
S

I
T

TH
E

MO
N
E
Y

THA
T

W
O
N

H
I
M

TH
E

V
OTE
S
,

O
R

W
A
S

I
T

HI
S

A
P
PEA
L

THA
T

W
O
N

TH
E

VOTE
S

INST
E
A
D

O
F

T
H
E

M
O
NE
Y
?

T
H
A
T
'
S

A

CR
U
C
IA
L

QU
ESTIO
N
BU
T

A

VER
Y

H
AR
D

ON
E

T
O

A
NS
W
E
R
.

V
O
TE
R

A
P
PEAL
,

AFTE
R

AL
L
,

IS
N
'
T

EAS
Y

T
O

QUANT
I
F
Y
.

H
O
W

CA
N

I
T

B
E

ME
A
SUR
E
D
?


I
T

C
A
N
'
T
,

R
E
ALL
Y

EXCEP
T

I
N

ON
E

SPECIA
L

CASE
.

T
H
E

KE
Y

I
S

T
O

MEA
S
UR
E

A

C
A
N
D
IDAT
E

A
G
A
I
NST
.

.

.

H
I
M
S
ELF
.

T
HA
T

I
S
,

C
A
ND
I
D
A
T
E
A

TODA
Y

I
S

LIKELY
T
O

B
E

S
I
M
ILA
R

T
O

C
AN
D
I
DA
T
E

A

T
W
O

O
R

FO
U
R

YE
A
R
S

H
E
NC
E
.

T
H
E

S
AM
E

C
O
UL
D

B
E

SA
I
D

F
O
R

C
A
N
DI
D
A
T
E

B
.

I
F

ON
L
Y

C
A
ND
I
D
A
T
E
A

R
A
N

A
GAI
N
S
T

C
A
NDI
D
AT
E

B

I
N

T
W
O

C
ONS
E
C
UT
IV
E

ELE
C
TION
S
B
U
T

I
N

EA
C
H

C
A
S
E

SPEN
T

DIFF
E
R
EN
T
A
M
OUN
T
S

O
F

MON
E
Y
.

T
HEN
,

W
I
T
H

TH
E

CANDIDATE
S
'

APPE
A
L

M
O
R
E
O
R

LES
S

C
O
NST
A
NT
,

W
E

C
O
UL
D

ME
A
SUR
E

T
H
E

MONEY
'
S

IM
P
AC
T
.


A
S

I
T

TURN
S

OU
T
,

TH
E

SA
M
E

T
W
O

C
A
ND
I
DAT
E
S

R
U
N

AGA
I
NS
T

EA
C
H

OTHE
R

I
N

C
O
NSECUTIV
E

ELE
C
TION
S

AL
L

TH
E

TI
M
E

INDE
E
D
,

I
N

NE
A
R
L
Y

A

TH
O
U
SA
ND

U.S
.

CONGRESSIONA
L

RACE
S

S
I
NC
E

1972
.

W
HA
T

D
O

T
H
E

N
U
M
B
E
R
S

HA
V
E

T
O

S
A
Y

A
B
O
U
T

SU
C
H

C
A
SE
S
?

H
E
R
E
'
S

TH
E

SURPR
I
S
E
:

TH
E

A
M
O
UN
T

O
F

MON
E
Y

SPEN
T

B
Y

D
I
E

CA
N
DI
D
A
T
E
S

H
A
RD
L
Y

MATT
E
R
S

A
T

AL
L
.

A

W
I
NNI
N
G

CA
N
DIDAT
E

C
A
N

CU
T

HI
S

SP
E
NDI
N
G

IN
HALF


A
N
D

LOS
E

O
NL
Y

1

PERCEN
T

O
F

TH
E

VOT
E
.

M
E
A
N
W
HILE
,

A

LOSI
N
G

CA
ND
IDAT
E

W
H
O

D
O
UBLE
S

HI
S

SPEND
I
N
G

C
A
N

EXP
E
C
T

T
O

SHIF
T

TH
E

VOT
E

I
N

HI
S

F
A
V
O
R
B
Y

ONL
Y

T
H
A
T

S
A
M
E

1

P
E
RC
E
N
T
.

W
HA
T

R
E
AL
L
Y

MATTE
R
S

FO
R

A

POLI
T
I
C
A
L

C
A
ND
I
DAT
E

I
S

NO
T

HO
W

M
UC
H

YO
U

SPEN
D
;

W
HA
T

MA
T
TER
S

I
S

W
H
O

Y
O
U

A
R
E
.
(T
H
E

S
A
M
E

C
O
UL
D

B
E

S
AI
D

A
N
D

W
IL
L

B
E

SAI
D
,

I
N

CHAPTE
R
5

A
B
O
U
T

PA
R
ENT
S
.
)

S
O
M
E

PO
L
ITICIA
N
S

AR
E

INHER
E
NTL
Y

ATTRAC
T
IV
E

T
O

VOT
E
R
S

A
ND

OTH
E
R
S

S
I
MPL
Y

A
R
EN
'
T
,

AN
D

N
O

A
MO
U
N
T

O
F

M
O
NE
Y

CA
N

D
O

M
U
C
H

AB
O
U
T

I
T
.

(M
ESSRS
.

F
OR
B
ES
,

H
U
F
FI
NG
TON
,

A
N
D

G
OLIS
A
N
O

A
L
RE
A
D
Y

K
N
O
W

THIS
,

OF
C
OU
R
S
E
.
)

A
N
D

W
HA
T

A
B
OU
T

TH
E

OTHE
R

HAL
F

O
F

TH
E

ELE
C
TIO
N

T
R
U
I
S
M

T
HA
T
TH
E

AMO
UN
T

O
F

MONE
Y

SPEN
T

O
N

CAMPA
I
G
N
F
I
N
A
NC
E

I
S

O
B
S
C
ENELY
H
U
GE
?

I
N

A

TYPICA
L

ELE
C
TIO
N

P
E
R
I
O
D

THA
T

IN
C
L
UDE
S

CA
M
P
AIGN
S
FO
R

TH
E

P
R
ES
I
DEN
C
Y
,

TH
E

S
ENATE
,

AN
D

TH
E

H
OUS
E

O
F

R
E
P
RESEN
T
ATI
V
ES
,

ABOUT

$
1

BILLIO
N

I
S

SPEN
T

PE
R

YEAR

W
HIC
H

S
O
U
ND
S

LIK
E

A

LO
T

O
F

MON
E
Y
,

UNLES
S

Y
O
U

C
A
R
E

T
O

MEAS
U
R
E

I
T

A
GAI
N
S
T

S
O
METHIN
G

SE
E
M
I
N
GL
Y

LE
S
S
IM
P
OR
T
AN
T

THA
N

DEMOCRAT
I
C

ELECTIONS
.


I
T

I
S

TH
E

SA
M
E

AMOUNT
,

FO
R

I
NSTANC
E
,

THA
T

A
MER
I
C
A
N
S

SPEN
D

EV
E
R
Y

YE
A
R

O
N

CHE
W
IN
G

G
U
M
.

T
HI
S

I
SN
'
T

A

BO
O
K

ABOU
T

TH
E

COS
T

O
F

C
H
E
W
IN
G

G
U
M
VER
S
U
S

C
A
M
P
AI
G
N
SP
E
NDI
N
G

P
E
R

S
E
,

O
R

AB
O
U
T

DISING
E
N
U
O
U
S

R
E
AL
-
ESTAT
E

AG
E
NTS
,

O
R

TH
E

IMPAC
T

O
F

LEGALIZE
D

AB
O
R
TIO
N

O
N

CR
I
ME
.

I
T

WILL
CER
T
AIN
L
Y

A
D
DRE
S
S

T
H
ES
E

SC
E
NARIO
S

A
N
D

DO
ZEN
S

MOR
E
,

FR
O
M

TH
E

AR
T

O
F

P
A
RENTIN
G

T
O

T
H
E

M
E
C
H
A
N
IC
S

O
F

CH
E
A
TIN
G
,

F
R
O
M

TH
E

INN
E
R

W
O
R
KINGS
O
F

A

CR
A
C
K
-
SELLIN
G

GAN
G

T
O

RACIA
L

DIS
CR
I
MINATIO
N

O
N

T
H
E

W
E
AK
E
S
T

L
INK
.

W
HA
T

THI
S

B
O
O
K

I
S

A
B
OU
T

I
S

STRIPP
I
N
G A

L
A
Y
E
R

O
R

T
W
O

FRO
M

T
H
E

SURF
A
C
E

O
F

M
O
DER
N

LIF
E

AN
D

SEE
I
N
G

W
HA
T

I
S

HA
P
PENI
N
G

U
N
DERNEA
T
H
.

W
E

W
IL
L

AS
K

A

L
O
T

O
F

QUESTI
ON
S
,

SOM
E

FR
I
VOLOU
S

AN
D

SOM
E

ABOU
T

LIFE
-

A
N
D
-
DEA
T
H
ISSUES
.

T
H
E

ANS
W
ER
S

M
A
Y

OFT
E
N

SEE
M

O
D
D

BUT
,

AFT
E
R

TH
E

FA
C
T
,

A
L
S
O

RATH
E
R

OBVI
O
US
.

W
E

W
IL
L

S
E
E
K

OU
T

TH
E
S
E

ANS
W
E
R
S

I
N

THE
DAT
A

W
HETHE
R

THOS
E

DAT
A

C
O
M
E

I
N

TH
E

FOR
M

O
F

S
C
HOOLCHILD
R
E
N
'
S

TES
T

SCO
R
E
S

O
R

N
E
W

Y
OR
K

C
I
T
Y
'
S

CR
I
M
E

STATISTIC
S

O
R

A

CR
AC
K

DEALER
'
S
FIN
A
NC
I
A
L
REC
O
RDS
.

O
FTE
N

W
E

W
I
L
L

TAK
E

ADVANTAG
E
O
F

PATTERN
S

I
N

TH
E

DA
T
A

THA
T

W
E
R
E

IN
C
ID
E
NTALL
Y

LEF
T

B
EH
I
N
D
,

LI
K
E

A
N

A
I
RPL
A
N
E

S

SH
A
R
P
C
O
NTRAI
L
I
N

A

HI
G
H

S
K
Y
.

I
T

I
S

W
EL
L

AN
D

G
O
O
D

T
O

OPIN
E

O
R

THE
O
RIZ
E

ABOU
T

A

SU
BJEC
T
,

A
S

HU
M
A
N
KI
N
D

I
S

W
ON
T

T
O

D
O
,

B
U
T

W
HE
N

MORA
L

POSTU
R
ING
I
S

REPL
A
C
E
D
B
Y

A
N

H
O
NES
T

ASSE
S
SM
E
N
T

O
F

T
H
E

DA
T
A
,

TH
E

R
ESUL
T

I
S

OFTE
N

A

N
E
W
,

SUR
P
R
I
SIN
G

INSIGH
T
.


M
ORALITY
,

I
T

COU
L
D

B
E

ARGUE
D
,

REP
R
ESENT
S
TH
E

W
A
Y

THA
T

PEOPL
E

W
OUL
D

LIK
E

TH
E

W
O
R
L
D

T
O

W
O
R
K

W
HE
R
EA
S

E
C
ONO
M
I
C
S
R
EP
R
ES
E
N
T
S

HO
W

IT
AC
T
UALL
Y

DOE
S

W
OR
K
.

E
CO
N
OM
I
C
S
I
S

ABOV
E

AL
L

A

SCI
E
N
C
E

O
F

MEA
S
UR
E
M
EN
T
.

I
T

C
O
MPRIS
E
S

A
N

EX
T
R
A
ORDI
N
ARI
L
Y

PO
W
ERF
U
L

AN
D

FLEX
I
B
L
E

SE
T

OF
TOOL
S

T
H
A
T

C
A
N

R
E
LIABL
Y

A
SSES
S

A

THICKE
T

O
F

IN
F
OR
M
A
TIO
N

T
O

DE
T
ERMIN
E

TH
E

EFFEC
T

O
F

A
N
Y

ON
E

FA
CT
O
R
,

O
R

E
VE
N

TH
E

W
HOL
E

EFFE
CT
.

T
HA
T
'
S
W
HA
T

"
TH
E

E
C
ONOMY
"

IS
,

AFTE
R

A
L
L
:

A

THICK
E
T

O
F

INF
O
RMAT
I
O
N

AB
OU
T

J
O
B
S

A
N
D

REA
L

E
S
TAT
E

AN
D

BA
NK
IN
G

A
N
D

INVES
T
M
E
N
T
.

B
U
T

T
H
E

TOOL
S

OF

E
C
ONO
M
I
C
S

C
A
N

B
E

J
US
T

A
S

EASIL
Y

APPLIE
D

T
O

SUB
J
E
C
T
S

T
HA
T

A
R
E

MO
RE

W
ELL
,

M
O
R
E

INT
E
RESTIN
G
.


T
HI
S

BO
O
K
,

THE
N
,

HA
S

BEE
N

W
R
ITTE
N

FRO
M

A

VER
Y

SP
E
CIF
I
C

W
ORLDV
I
E
W
,

BASE
D

O
N

A

FE
W

FU
N
D
A
M
EN
T
A
L

IDEAS
:


I
NCENT
I
VE
S
AR
E

TH
E

C
O
RN
E
R
S
T
ON
E

O
F

MOD
E
R
N

LIF
E
.

A
N
D

U
ND
E
RST
A
N
D
IN
G

TH
E
M

O
R
,

OFTE
N
,

FER
R
ETIN
G

THE
M

OU
T

I
S

TH
E

KE
Y

T
O

SOLV
I
N
G

J
UST
ABOU
T

A
N
Y

RI
D
DLE
,

FRO
M

VIOLEN
T

CR
I
M
E

T
O

SPO
R
T
S

CHEATIN
G
T
O

ONLIN
E

DATING
.


T
H
E

CO
N
V
E
NTIO
N
A
L

W
I
SD
O
M

I
S

O
FTE
N

W
R
ON
G
.

C
R
I
M
E

D
I
D
N
'
T

KEE
P

SOA
R
IN
G

I
N

TH
E

1990
S
,

M
O
NE
Y

A
L
ON
E

DOE
SN
'
T

W
I
N

ELE
C
TIONS
,

A
N
D

SU
R
P
RIS
E


DR
I
NK
I
N
G

E
I
GH
T

G
L
ASS
E
S

O
F

W
ATE
R

A

D
A
Y

H
A
S

NEV
E
R

A
C
TUALL
Y

BE
E
N

SHO
W
N

T
O

D
O

A

THI
N
G

F
O
R

Y
O
U
R

HEALT
H
.

C
O
N
VENTI
ON
A
L

W
ISDO
M

I
S

OFTEN
SH
O
DDI
L
Y
FORM
E
D

A
N
D

DEVILIS
H
L
Y

DIFF
I
C
UL
T

T
O

SE
E

THROUG
H
,

BU
T

I
T

CA
N

B
E

D
ON
E
.
D
R
A
MATI
C

EFF
E
CT
S

OFTE
N

H
AV
E

DIS
T
A
NT
,

EVE
N

SUBTLE
,
C
A
USES
.

T
H
E

ANS
W
E
R

T
O

A

GIV
E
N

RIDDL
E

I
S

N
O
T

AL
W
AY
S

RIGH
T

I
N

F
R
O
N
T

O
F

Y
O
U
.

N
OR
M
A

M
C
C
O
R
V
E
Y

H
A
D

A

F
A
R

G
R
E
ATE
R

I
M
P
A
C
T

O
N

CR
I
M
E

THAN
DI
D

TH
E

C
O
MBINE
D
FO
RCE
S

O
F

G
U
N

C
O
NTROL
,

A

STR
O
N
G

E
C
O
N
OMY
,

AN
D

INNOVATIV
E

POLI
C
E

ST
R
ATEGIE
S
.

S
O

D
I
D
,

A
S

W
E

SHAL
L

SEE
,

A

M
A
N

N
AM
E
D

O
S
C
A
R

D
A
N
IL
O

B
L
A
ND
ON
,

A
K
A

T
H
E

J
OH
N
N
Y

A
PPLESEE
D

O
F

C
RA
C
K
.

"E
XP
E
R
TS
"

FRO
M

C
R
I
M
IN
OL
O
G
IST
S

T
O

R
EAL
-
ESTAT
E

AG
E
NTS

US
E

T
HEI
R

IN
FO
RMAT
I
O
N
A
L

A
D
V
A
NTA
G
E

T
O

SERV
E

THEI
R

O
W
N

AGE
N
D
A
.

H
O
W
EVE
R
,

THE
Y

CA
N

B
E

BEA
T

A
T

THEI
R

O
W
N

G
AM
E
.

A
N
D

I
N

TH
E

FA
C
E

O
F

TH
E

I
NT
E
R
NET
,

THE
I
R

INF
O
RM
A
TIO
N
A
L

A
D
V
A
NTAG
E

I
S

SH
RI
N
KI
N
G
E
V
ER
Y

D
AY

AS
EVIDEN
C
E
D

B
Y
,

A
M
O
N
G

OTH
E
R

THI
N
GS
,

TH
E

FA
L
LIN
G

P
R
IC
E

O
F

COFF
I
N
S

A
N
D

LIFE
-
INSURAN
C
E

PRE
M
IU
M
S
.


K
N
O
W
IN
G

W
HA
T

T
O

MEAS
U
R
E

AN
D

HO
W

T
O

MEAS
U
R
E

I
T

M
A
KE
S

A

C
O
MPL
I
CATE
D

W
ORL
D

M
U
C
H

LES
S

S
O
.

I
F

YO
U

LE
A
R
N

T
O

LO
O
K

A
T

DA
T
A

I
N

TH
E

RI
G
H
T

W
AY
,

YO
U

CA
N

EXP
L
AI
N

RIDDLE
S

T
H
A
T

OTH
E
R
W
IS
E

MI
G
H
T

H
AV
E

SE
E
M
E
D

IM
P
OSS
I
BLE
.

B
E
C
AUS
E

THE
R
E

I
S

NOTH
I
N
G

L
I
K
E

TH
E

SH
E
E
R

PO
W
E
R

O
F

NUM
B
ERS
T
O

SCR
U
B

A
W
A
Y

LAYER
S

O
F

CON
FU
SIO
N

A
N
D

CON
T
R
A
DICT
I
O
N
.


S
O

TH
E

A
I
M

O
F

THI
S

BO
O
K

I
S

T
O

EX
P
LOR
E

TH
E

H
I
DDE
N

S
I
D
E

O
F
..
.

EV
E
RY
THING
.

T
HI
S

M
A
Y

O
C
CA
S
IONAL
L
Y

B
E

A

FR
U
STR
A
TIN
G

EX
E
R
CIS
E
.

I
T

MA
Y

S
O
ME
-

TI
M
E
S

FEE
L

A
S

I
F

W
E

A
R
E

PEE
R
IN
G

A
T

TH
E

W
O
R
L
D

THROUG
H

A

STRA
W

O
R

EVE
N

STA
R
I
N
G

IN
T
O

A

FUNHOUS
E
MI
R
R
OR
;

B
U
T

TH
E

IDE
A

I
S

T
O

LOO
K

A
T

M
A
NY

DIFFEREN
T

S
C
ENA
R
IO
S

AN
D

EXA
M
I
N
E

THE
M

I
N

A

W
A
Y

THE
Y

HAV
E

RAREL
Y

B
EE
N

E
XAMINE
D
.

I
N

S
O
M
E

R
E
G
ARDS
,

THI
S

I
S

A

STRANG
E

C
ON
C
EP
T

FO
R

A

BOO
K
.
M
OS
T

BOOK
S

PU
T

FO
R
T
H

A

SINGL
E

THE
M
E
,

CRISPL
Y

EX
P
R
E
SSE
D

I
N

A

S
E
NTE
N
C
E
O
R

T
W
O
,

AN
D

T
HE
N

TEL
L

TH
E

ENTIR
E

S
TOR
Y

O
F

THA
T

THEM
E
:

THE

HIST
O
R
Y

O
F

SALT
;

TH
E

F
R
AGILIT
Y
O
F

DEMO
C
R
A
C
Y
;

TH
E

US
E

AN
D

MI
S
U
S
E

O
F

PU
N
C
T
UATI
O
N
.

T
H
I
S

B
O
O
K

HA
S

N
O

S
U
C
H

U
NIFY
I
N
G

T
H
EME
.

W
E

D
I
D
C
O
NSID
E
R
,

F
O
R

ABOU
T

S
I
X

MI
N
UTES
,

W
R
ITIN
G

A

B
O
O
K

T
H
A
T

W
OUL
D

RE
V
OLV
E

A
R
OU
N
D

A

S
I
NG
L
E

THEM
E

T
H
E

THEO
R
Y

AN
D

PRA
C
TI
C
E

O
F

APPL
I
E
D
M
I
C
R
O
E
C
ON
O
M
I
C
S
,

A
NY
ONE
?

B
U
T
OPTE
D

INS
T
EA
D

FO
R

A

SO
R
T

O
F

T
R
E
ASU
R
E
-
HUN
T

APPRO
A
C
H
.

Y
ES
,

THI
S

AP
P
R
O
AC
H
E
M
P
L
OY
S

T
H
E

BES
T

A
NA
LYTICAL
TOOL
S

T
H
A
T

ECO
NO
M
I
C
S
C
A
N

OFF
E
R
,

B
U
T

I
T

ALS
O

ALLO
W
S

U
S

T
O

FOLLO
W

W
HATE
V
E
R

F
R
EAK
I
S
H

C
U
RI
O
SITIE
S

M
A
Y

O
C
C
U
R

T
O

U
S
.

T
HU
S

O
U
R

INVENTED

FIEL
D

O
F

S
T
UD
Y
:

F
R
E
A
K
O
N
OM
I
C
S
.

T
H
E

S
O
R
T

O
F

STORIE
S

T
O
L
D

I
N

THI
S

BO
O
K

A
R
E

N
O
T

OFTE
N

C
O
VER
E
D

I
N

E
C
O
N

101
,

BU
T

THA
T

M
A
Y

CH
A
NG
E
.

S
IN
C
E

THE
SCIE
N
C
E

O
F

EC
O
N
O
M
I
C
S

I
S

PR
I
M
A
R
I
L
Y A

SE
T

O
F

T
OOL
S
,

A
S

OPPOSE
D

T
O

A

SUB
J
E
C
T

MATTER
,

THE
N

N
O

SUB
J
E
C
T
,

HO
W
EVE
R
OFF
B
EA
T
,

NEE
D

B
E

B
E
YON
D

ITS
R
E
A
C
H
.


I
T

I
S

W
ORT
H

REM
E
MB
E
R
IN
G

T
H
A
T

A
D
A
M

S
M
ITH
,

TH
E

FOUNDE
R

O
F

C
LASSI
C
A
L

ECONO
M
I
CS
,

W
A
S

FIRS
T

A
N
D

F
O
R
E
MOS
T A

P
HILO
S
OPH
E
R
.

H
E

S
T
R
O
V
E

T
O

B
E

A

MORALIS
T

AND
,

I
N

DO
I
N
G

SO
,

B
E
C
A
M
E

A
N

ECO
N
O
M
IS
T
.

W
HE
N

H
E

P
U
BLISHE
D

T
H
E

T
HE
O
R
Y

O
F

M
ORA
L

S
ENTI
M
ENT
S

I
N

1759
,

MODER
N

CAPITA
L
IS
M

W
A
S
J
U
S
T

GETTIN
G

UNDE
R

W
A
Y
.

S
M
I
T
H

W
A
S

ENT
R
AN
C
E
D

B
Y

TH
E

S
W
EEPIN
G

C
H
A
N
GE
S

W
R
O
U
G
H
T
B
Y

THI
S

NE
W

FORCE
,

BU
T

I
T

W
AS
N
'
T

JUS
T

TH
E

NUM
B
ER
S

THAT
INTERESTE
D

HI
M
.

I
T

W
A
S

TH
E

HU
M
A
N

EFFE
C
T
,

T
H
E

F
A
C
T

T
H
A
T

EC
O
N
O
MI
C
F
O
RCE
S

W
ER
E

VAS
T
L
Y

C
H
A
N
GI
N
G
TH
E

W
A
Y

A

PER
S
O
N

T
H
O
U
G
H
T

A
N
D

BE
H
AV
E
D
I
N

A

GIV
E
N

SITUATI
O
N
.

W
H
A
T

MIG
H
T

LEA
D

ON
E

PER
S
O
N

T
O

CH
E
A
T

O
R

S
TEA
L

W
HIL
E

ANO
T
HE
R

D
ID
N
'
T
?

H
O
W

W
OUL
D

ON
E

PERS
ON
'
S

SEEMI
N
GLY

INN
O
CU
O
U
S

C
H
OIC
E
,

G
O
O
D

O
R

B
A
D
,

AFF
E
C
T

A

G
R
EA
T

NU
MBE
R

O
F

PE
O
P
L
E

DO
W
N

TH
E

LINE
?

I
N

S
M
IT
H
'
S

ERA
,

C
A
US
E

A
N
D

EFFEC
T

H
A
D

BE
G
U
N

T
O

W
ILDLY

AC
C
ELERA
T
E
;

INCENTIVE
S

W
ER
E

M
AGNIFIE
D

TENFO
L
D
.

T
H
E

GRAVIT
Y

A
N
D

S
HO
C
K

O
F

THES
E

C
H
A
N
GE
S

W
ER
E

A
S

OV
E
RWHELM
I
N
G

T
O

TH
E

CITIZEN
S

O
F

H
I
S
TIM
E

A
S

TH
E

GRAVIT
Y

A
N
D

S
HO
C
K

O
F

M
O
D
E
R
N

L
IF
E

M
A
Y

SEE
M

T
O

U
S

T
O
D
A
Y
.


S
M
I
T
H
'
S

TRU
E

S
U
BJ
E
C
T

W
A
S

TH
E

FRICTIO
N

BE
T
W
EE
N
INDI
V
IDUA
L

DES
I
R
E

A
N
D

S
O
CIETA
L

N
O
RMS
.

T
H
E

EC
O
N
O
M
I
C
HIS
T
OR
I
A
N
R
OBE
R
T

H
EILBRON
E
R
,
W
R
ITIN
G

I
N

T
H
E

W
O
R
L
D
L
Y

P
HILO
S
OPH
E
R
S
,

W
OND
E
RE
D

HO
W

S
M
IT
H

WA
S

A
B
L
E

T
O

SEPA
R
AT
E
TH
E

DO
I
NG
S

O
F

MAN
,

A

C
R
EA
T
U
R
E

O
F

SELF
-
INTEREST
,

FROM
TH
E

GR
E
ATE
R

M
O
RA
L

P
L
AN
E

I
N

W
HIC
H

M
A
N

OP
E
R
AT
E
D
.

"
S
MIT
H

HEL
D

THA
T

TH
E

ANSWE
R

LA
Y

I
N

OU
R

A
B
ILIT
Y

T
O

PU
T

OU
R
SELVE
S

I
N

TH
E

POSITIO
N

O
F

A
THIR
D

PER
S
O
N
,

A
N

I
M
P
A
R
T
I
A
L

O
BS
E
R
V
E
R
,
"

H
E
ILBRON
E
R

W
R
OT
E
,

"
A
N
D

I
N

THI
S

W
A
Y

T
O

FOR
M

A

NOTI
O
N

O
F

TH
E

OBJ
E
C
T
IV
E
.

.

.

MERIT
S

O
F

A

C
A
SE
."


C
O
N
SI
D
E
R

Y
O
U
R
SEL
F
,

T
HEN
,

I
N

TH
E

C
O
M
P
A
N
Y
O
F

A

THIR
D

P
ERS
O
N

O
R
,

I
F

YO
U

W
ILL
,

A

PAI
R

O
F

THIR
D

P
E
O
P
LE

EAGE
R

T
O

EXPLO
R
E

TH
E

OB
J
E
C
T
IVE
M
E
R
IT
S

O
F

I
NTE
R
ESTIN
G

C
ASES
.

T
H
E
S
E

EXPL
O
R
A
TION
S

G
E
N
E
RAL
L
Y

BEG
I
N

W
IT
H

TH
E

AS
K
IN
G

O
F

A

SIMPL
E

U
NA
S
KE
D

QU
ESTION
.

S
U
C
H

AS
:

W
HA
T

DO

S
C
HOOLTEA
C
H
E
R
S

AN
D

SU
M
O

W
R
ESTLE
R
S

HAV
E

I
N

C
O
MMO
N
?