Life’s trade-offs in 10 easy principles

Sydney Morning Herald: Life's trade-offs in 10 easy principles

Here's a never-to-be-repeated holiday special: all you need to know about economics in 10 easy steps. They come courtesy of the best-selling introductory economics textbook by Gregory Mankiw of Harvard University (with Joshua Gans and Stephen King co-authors of the Australian edition).

Economics is the study of how society manages its scarce resources, where ''scarce'' means there are fewer resources than we'd like to be able to use.

The first four of Mankiw's 10 principles concern the way people make decisions, and the first is: people face trade-offs. That is, to get one thing we like we usually have to give up another thing we like.

Economics is about the trade-offs people – and societies – have to make, and about helping people improve the trade-offs they're making.

One common trade-off society faces is between efficiency and equity. Efficiency in the allocation of resources means society getting the most it can from its scarce resources. Equity means the benefits from those resources are distributed fairly among the members of society. Often, the things we could do to make the cake bigger (efficiency) make the slices of the cake more unequal (equity) and vice versa.

The second principle is: …