3 Economics is a method of approach, a way of thinking. The economic way of thinking emphasizes the following:

(a) Among economic goods, there are no free lunches. Someone must give something up if we are to have more scarce goods.

(b) Individuals make decisions purposefully, always seeking to choose the option they expect to be most consistent with their personal goals. Purposeful decisionmaking leads to economizing behavior.

(c) Incentives matter. People will be more likely to choose an option as the benefits expected from that option increase. In contrast, higher costs will make an alternative less attractive, reducing the likelihood that it will be chosen.

(d) Marginal costs and marginal benefits (utility) are fundamental to economizing behavior. Economic reasoning focuses on the impact of marginal changes.

(e) Since information is scarce, uncertainty will be present when decisions are made.

(fJ In addition tu their initial impact, economic events often alter personal incentives in a manner that leads to important secondary effects that may be felt only with the passage of time.

(g) The test of an economic theory is its ability to predict and to explain events of the real world.