Principles That Underlie Individual Choice: The Core of Economics

Individual choice is the decision by an individual of what to do, which necessarily involves a decision of what not to do.

Every economic issue involves, at its most basic level, individual choice—decisions by an individual about what to do and what not to do. In fact, you might say that it isn’t economics if it isn’t about choice.

Step into a big store like a Walmart or Target. There are thousands of different products available, and it is extremely unlikely that you—or anyone else—could afford to buy everything you might want to have. And anyway, there’s only so much space in your dorm room or apartment. So will you buy another bookcase or a mini-refrigerator? Given limitations on your budget and your living space, you must choose which products to buy and which to leave on the shelf.

1. People must make choices because resources are scarce.

2. The opportunity cost of an item—what you must give up in order to get it—is its true cost.

3. “How much” decisions require making trade-offs at the margin: comparing the costs and benefits of doing a little bit more of an activity versus doing a little bit less.

4. People usually respond to incentives, exploiting opportunities to make themselves better off.
Table :

TABLE 1-1 The Principles of Individual Choice

The fact that those products are on the shelf in the first place involves choice—the store manager chose to put them there, and the manufacturers of the products chose to produce them. All economic activities involve individual choice.

Four economic principles underlie the economics of individual choice, as shown in Table 1-1. We’ll now examine each of these principles in more detail.