Economics is the study of the choices people make to attain their goal using scarce resources

which have alternate uses

Economic Analysis of Decision Making

1. People are rational
2. People respond to incentives
3. Opportunity costs matter
4. Sunk costs do not matter

Economic Rationality
 people use all available information to achieve their goals
 does not mean that people are selfish
 does not mean that you agree with their choices
 the rationality assumption respects the decision maker and allows us to understand
rather than judge
Economic Incentives
 an incentive is anything that is designed to alter behavior
 does not need to be a financial incentive
 incentives often unintended consequences
Opportunity Costs
 the highest-valued alternative that must be given up to engage in an activity
 again does not need to be a financial in nature
 changing how much we value the next best alternate use of a scarce resource can
change the choices we make
Sunk Costs
 a cost which is already incurred and cannot be recovered (or which will be incurred in
the future but cannot be avoided)
 sunk costs do not affect the decisions of rational people