The word economy comes from the Greek word for “one who manages a house- hold.” At first, this origin might seem peculiar. But, in fact, households and economies have much in common. A household faces many decisions. It must decide which members of the household do which tasks and what each member gets in return: Who cooks din- ner? Who does the laundry? Who gets the extra dessert at dinner? Who gets to choose what TV show to watch? In short, the household must allocate its scarce re- sources among its various members, taking into account each member’s abilities, efforts, and desires. Like a household, a society faces many decisions. A society must decide what jobs will be done and who will do them. It needs some people to grow food, other people to make clothing, and still others to design computer software. Once soci- ety has allocated people (as well as land, buildings, and machines) to various jobs,
TEN PRINCIPLES
O F E C O N O M I C S
3
Consider why trade among people or nations can be good for everyone
Discuss why markets are a good, but not perfect, way to allocate resources
Learn what determines some trends in the overall economy
4 PART ONE INTRODUCTION it must also allocate the output of goods and services that they produce. It must decide who will eat caviar and who will eat potatoes. It must decide who will drive a Porsche and who will take the bus. The management of society’s resources is important because resources are scarce. Scarcity means that society has limited resources and therefore cannot pro- duce all the goods and services people wish to have. Just as a household cannot give every member everything he or she wants, a society cannot give every indi- vidual the highest standard of living to which he or she might aspire. Economics is the study of how society manages its scarce resources. In most societies, resources are allocated not by a single central planner but through the combined actions of millions of households and firms.

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