Principles of Economics

Unemployment is a macro phenomena with real consequences for individuals. Here, the authors provide sound advice on how students can protect themselves from the harmful effects of unemployment.

Protecting Yourself from the Harmful Effects of Unemployment

Unemployment can be terrible. But there are some things you can do to help protect yourself from the harmful effects of unemployment.

Do more job searching than you really want to do. Job searching when you’re unemployed is a miserable experience. Too often people procrastinate finding a job, doing too little search until their savings start to run out or their unemployment insurance is about to end. But remember the core principles of economics and apply for any job for which the marginal benefit of applying (the probability of getting a job offer times the wage) exceeds the marginal cost of applying (and remember that the emotional pain of applying is short-lived!).

Build up a nest egg. Now that you know half of those who lose their job end up unemployed for more than 10 weeks, and it’s not unusual for it to take six months to find work, you probably understand why financial advisers tell you to have three to six months of expenses saved up. You should find out if you’d be eligible for unemployment insurance and put away a bit more if you aren’t or if the unemployment rate is high. Remember that anyone can end up finding themselves unemployed. But the experience is not as bad if you have enough in savings that you don’t have to worry about paying the rent.

Build new skills. The economy is constantly adapting, and you must too. Continuing to learn and build your skills is necessary to advance your career, but it’ll also help you land on your feet if you find yourself unemployed.

Keep an eye out for better opportunities when you’re employed.Many employed people keep searching for other opportunities. Keeping an eye out for better opportunities when you’re employed can help you advance in your career by identifying jobs that use recent skills you’ve built, but it can also help if things start to get rocky in your current position. Many people who think their job is likely to come to an end begin searching long before a pink slip arrives. Such searching increases the chance that you’ll avoid unemployment by being able to start a new job right away.

Tap into all your networks if you become unemployed. You’re more likely to get hired if you have a referral. So if you find yourself unemployed, it’s time to call on everyone you know to tell them that you’re looking. It takes courage to tell your friends you’re looking for work, or to broadcast your job search through social media, but letting people know that you’re looking for a new opportunity can pay off.

Avoid long-term unemployment. Sometimes you’re offered a job that’s not quite as good as you think is possible. If it’s your first week searching, you might want to turn it down, but don’t keep turning jobs down forever. You’ve learned about the scarring effects of long-term unemployment—that means that you want to avoid it even if means settling for Mr. Not-So-Right Job. The good news is that, unlike marriage, you can keep searching for a better job even while you’re employed.

Behavioral economics is one of the hottest topics in the discipline, and Stevenson and Wolfers address behavioral econ throughout micro, including a thorough examination of how we assess risk in Chapter 19.

Behavioral Economics: How People Make Mistakes Around Uncertainty

You’ve now developed a robust understanding of how to make good decisions in the face of uncertainty and learned some strategies you can pursue to reduce risk. But risk is a difficult concept, and people often struggle with it. In 2018, the Nobel Prize in economics was given to Richard Thaler, who in his acceptance speech said that he was receiving the prize because he “discovered the presence of human life in a place . . . my fellow economists thought it did not exist: the economy.” He and many economists in the last few decades have studied how human beings process information to understand what it means for economic decision making. This type of research has been called behavioral economics because it includes psychological factors in assessing how people make economic decisions. All of economics is concerned with human behavior; in recent decades economists have developed a better understanding of the behavior of actual humans.

This is a big deal when it comes to uncertainty because people often make fairly predictable mistakes when assessing probabilities and payoffs. These mistakes stem from relying on snap judgments, rather than more reasoned consideration. Psychologists distinguish between two styles of thinking. System 1 refers to your intuitive thoughts. They are fast, effortless, and almost automatic. These intuitions rely on rough, but often accurate, rules of thumb. The first psychologist to win the Nobel Prize in economics, Daniel Kahneman, calls System 1 “thinking fast.” By contrast, System 2 is your slower, deliberative, logical self, and it uses a methodical style of thinking that requires cognitive effort. Not surprisingly, he calls that “thinking slow.” When you’re thinking through expected utility calculations, you’re thinking slow. But most of the time, you’re using System 1 and thinking fast. Life is too short to think slow all the time. Even so, thinking fast leads us astray a lot, particularly when it comes to uncertainty.

Good decision makers know when it’s time to overrule their snap judgments and revert to thinking slow. And so you can think of what follows as an operating manual for your mind. This operating manual will help you figure out when thinking fast will yield bad answers, so that you pause your intuition and apply the more deliberate approach of thinking slow instead.

Unique coverage of labor market dynamics provides students with a more complete understanding of what unemployment numbers mean and why the fed doesn’t target zero unemployment.

The Dynamics of the Labor Market

To better understand the labor market, it’s helpful to start with an analogy. Picture a busy restaurant: As customers leave, new customers are seated. Tables are always turning over, so while most tables are full, new customers arriving are able to find a table without much of a wait. Sometimes, though, things clog up and there are more customers than tables or it takes a lot of time to get tables ready for new customers.

The labor market is in many ways like a crowded restaurant, where jobs are like tables and workers are like hungry diners. Every day, hundreds of thousands of people leave and start jobs. People leave jobs for all sorts of reasons—they may get laid off or fired, they may quit for a better job, or they may quit to exit the labor force. Just like a dynamic restaurant, where a large number of tables turning over regularly makes it easy for new people to arrive and find a table quickly, a dynamic labor market makes it easy for new people to enter the labor market and find a job quickly.

But, like a restaurant, the labor market can also get backed up. Potential workers may not be well matched to the jobs available. If many people become unemployed at once, there may not be enough job openings for everyone, and it may take longer to find a job. There may be barriers to employers eliminating inefficient jobs or workers, which slows down the process of creating new jobs or hiring new workers. Let’s take a closer look at the dynamics of the U.S. labor market.

Students learn how to put economics to work—at work. They'll see that smart employers invest in human capital, and use incentives to motivate workers and shape corporate culture.

Personnel Economics

Congratulations on your promotion! Now you’re the boss. Sure, you’ve worked for bad bosses in the past. But you’ll be different. You’ve just got to figure out how. As the boss, you’ll be in charge of your firm’s personnel policies. Your goal will be to get your workers to do more, without costing your company too much. We’ll explore five big ideas that realworld managers use:

1. Ensure your workers have the right skills for the job.
2. Motivate your staff with incentives.
3. Shape your corporate culture.
4. Offer the right benefits package.
5. Attract and retain better workers.

As we explore these ideas we’ll discover that economic reasoning can lead to some unexpected insights into how to get your workers to be more effective. Let’s explore each of these big ideas in turn.

You can motivate your workers with either carrots or sticks.

Students learn the importance of using real dollars by comparing box office receipts for eight films in the Star Wars franchise.

Do the Economics

You can see how this formula works by converting the box office take from different eras into today’s dollars (and to help you, Figure 6 shows you the price level for each year):

The Force Awakens was released in 2015, and it grossed $937 million in 2015 dollars, when the CPI was 237.0. Today (in 2018) the CPI is 251.1. Therefore:

Students learn to apply the cost-benefit principle and the opportunity costs principle to just about every decision they make. They'll quickly see that when folks are unemployed, their time is less scarce; in economic terms, it's “cheaper” to go to the movies when you don't have to miss work to do it.

Why do more people go to the movies during an economic downturn?

During the recent economic downturn, the major film studios braced themselves for a major decline in business. But they shouldn’t have. Why? The most important cost of seeing a movie isn’t the $13 price of the ticket. Instead, it’s the opportunity cost of your time. The movie takes two hours, and you could spend this time doing something else. Perhaps you could be working instead of seeing the movie. But when the economy is weak, there are fewer jobs, and there is often less work to do, and so the opportunity cost of your time is lower. Or perhaps the alternative to the movie is going to a party. But fewer people throw parties when the economy is weak, so your alternative may be a night watching television. Because the opportunity cost of time is lower during an economic downturn, people choose to see more movies. In fact, a weak economy is often good news for the movie industry.

Give your students an insider’s view of the Federal Open Market Committee (FOMC) operations, with details on what’s discussed and how the public policy decisions that affect their lives are made—and by whom.

The Federal Open Market Committee

The Fed governors, the New York Federal Reserve Bank president, and the district Fed presidents form the Federal Open Market Committee (FOMC), whose purpose is to decide on U.S. interest rates. They all participate, but only the Fed governors, the New York Fed bank president, and a rotating group of four regional Fed presidents are voting members, meaning that they vote on policy decisions. The Fed chair runs the FOMC and is the most important spokesperson for the Fed. The FOMC meeting is that meeting mentioned at the start of the chapter—the one that’s one of the most important meetings in the world—so let’s take a look inside it.

Step into the meeting. When you walk into an FOMC meeting, you’ll see a big table with the members and participants seated around it. The Fed chair sits in the middle and decides who’s going to speak and in what order. These decisions sound minor, but they can have a bigger impact on outcomes than you might expect. Former Fed chair Alan Greenspan used to tell everyone what he thought the right monetary policy decision was first, making it awkward for other members to discuss alternatives. When Ben Bernanke took over as Fed chair in 2006, he took a more democratic approach. In order to foster debate, he waited to share his views until he’d heard everyone else speak. His successors, Janet Yellen and Jerome Powell, have followed a similar approach, resulting in a wider range of views and data being brought into the discussion. Research also shows that greater gender and racial diversity in meetings can improve decision making, and the Fed and Congress have made progress in bringing greater diversity to the FOMC in recent years.

So now that you know who’s at the meeting, let’s turn to what they talk about. To decide monetary policy, each member must be prepared to answer three questions:

1. What are your forecasts for the U.S. economy?
2. What are the right policy choices given the economic outlook?
3. How should the Fed communicate its plans effectively to the public?

Each member prepares their answers to these questions in advance, and they’ll often arrive at the meeting with quite different views. The meeting is a time for them to discuss their answers to these three questions, develop a consensus view, and make a decision.

Ideas are engines for growth, for companies and for entire economies. Stevenson and Wolfers emphasize both the macro and micro implications of ideas—and show that human capital is worth investing in.

Innovative companies make time for new ideas

Successful managers know that new ideas are the key not just to economic growth, but to the growth of their own business. Google founders Larry Page and Sergey Brin recognized the trade-off workers face between producing goods and services and producing new ideas—and they wanted to ensure that their employees spent time working on new ideas. That’s why Google embraces the “20% rule,” which empowers all employees to spend up to 20% of their workweek dreaming up and developing their own ideas for new products. Google argues that this option helps keep their highly creative employees engaged in generating new ideas. It also ensures that workers maintain control over their creative energy and some of their work time. Does it work? It sure seems to: Gmail, Google Maps, and Google News all started as projects that employees pursued in their 20% time.

Lots of companies implement similar tactics to ensure that their employees devote some time to developing new ideas. For example, the CEO of Bosch Group asked its entire workforce to form into teams that were tasked with trying to come up with ways to compete against Bosch. They took the best ideas these teams came up with and gave a selected group of people eight weeks leave from their regular duties to see if they could turn the idea into a new or improved product for Bosch. The bottom line is that it takes time to come up with new ideas, and smart managers make sure that their workers have time to innovate.

Students are invited to follow one family-owned American business as it facs the challenges of selling its products internationally.

International Finance and the Exchange Rate

In 1893, the Mathison family began a small farm in Washington State, producing enough to feed their family. Over time, the farm grew, and they began selling their crops at local markets. By the 1950s they were selling in markets outside of Washington, but they were struggling. They would load ripe, freshly harvested cherries onto trains packed with ice and hope they would still be good when they made it to their destination. If their fruit made it to New York with little spoilage, they were nearly guaranteed robust demand from the large population of New Yorkers. But if it got hot, spoilage rates were punishingly high. In 1958, they made a mere $88 after producing 100 tons of fruit because most of it rotted en route.

To succeed, the Mathisons needed to solve the problem of spoilage. They worked to improve their packing and transportation methods and by the 1970s, they had built a fruit packing, storage, and shipping facility that kept their fruit cold enough that it could survive a trip across the United States. This innovation not only gave them access to markets as far away as New York, but it also laid the foundation for exporting their fruit around the world. By the 1980s, they were exporting apples and cherries to a handful of countries. Over recent decades their business has grown as they’ve entered more foreign markets. Today, the Mathisons export fruit to 26 countries.

All of this has required the Mathisons to become conversant in exchange rates and international finance. We’ll follow the Mathisons’ decisions in this chapter, analyzing what determines how competitive they’ll be in the global market, and whether it makes sense to sell their produce abroad. International transactions often involve foreign currencies, and so we’ll dive into how exchange rates are determined, how they respond to changing economic conditions, and how they’ll affect the Mathisons’ business. Along the way we’ll see how developments in the global economy affect the prices you’ll pay as you seek goods, services, customers, investments, and investors from around the world. As you read this chapter, keep your eye on the broader theme, which is that increasingly all business is international business, and so the fates of businesses, communities, and countries around the world are becoming increasingly interdependent.

Everyday Econ features present simple life hacks that take economic thinking—and economic research—and apply it to real-life situations every student will eventually face. Here, the authors walk students through a salary negotiation with advice on factoring in inflation.

How to beat money illusion by negotiating for a real raise

A few years back a friend of mine was negotiating a raise with his boss and reached out to me for advice. He was earning $100,000 per year and his boss offered him a contract that would see his wage rise by 5% over the five-year term of the contract. My friend wanted more, but he understood his boss had limited funds, and he was pleased to see his hard work rewarded with a pay increase.

But he wasn’t getting a real pay raise. Inflation was running at about 2% per year, so over five years, the average price level would rise by about 10% while his wages would only grow at half that rate. If your nominal wage rises by 5% over a period when prices rise by 10%, then your boss is actually cutting your real wage by about 5%.

My friend’s mistake was to think about his current nominal wage as the baseline in his wage negotiations. Relative to that reference point, any boost to his nominal wage was framed as good news. Instead, you want to make your current real wage thestarting point.

So when you next negotiate over your pay, begin the conversation with your boss by pointing out that inflation has reduced the value of your wage. Lay out the latest numbers and suggest that you expect an inflation-based adjustment to offset the rising cost of living. There’s not really a good counterargument, so it’s likely they’ll agree. Now that you’ve set your real wage as the baseline, turn the conversation to what sort of real wage boost you deserve for your hard work over the past year. If you’ve performed well, this conversation should also go well. How well? When I advised my friend to follow this script in his negotiation, he ended up with a much bigger raise than his boss originally offered—more than enough to offset inflation. If his experience is any guide, it will work for you, too.

How to save money on household repairs

Your roof starts leaking. A pipe bursts. Or perhaps your electrical wiring shorts. Whatever the domestic disaster, you want to make sure to shop around. If you just call one contractor and ask them to make the repair, it’s likely they’ll charge you a high price. They figure they have a lot of bargaining power, because your next best alternative— living without shelter, water, or electricity—is pretty terrible.

This shift will lead these competing contractors, who each want the job, to offer a much lower price. Even simpler: Just call one tradesman for a quote, but tell them that you’re going to get two more quotes. They won’t know if you ever make those calls, but the fact that you are considering it will likely lead them to offer you a more reasonable price.

Stevenson and Wolfers show connections between the four core principles and macroeconomic trends, such as child care and marriage decisions.

In 1975, more than half of all mothers stayed out of the labor force. Since then, things have changed, and the most recent data suggest that only 30% of moms stay at home. Why? Most mothers face a choice between staying at home and working for pay. Over recent decades, there has been a sharp rise in women’s wages, and since 1975, the annual earnings of a typical full-time female worker rose by around $10,000 (after adjusting for inflation), even as male earnings barely changed. Consequently, the opportunity cost of being a stay-at-home mom has risen. As this opportunity cost has risen, fewer women have chosen to stay at home. Instead, more women are now choosing to combine motherhood and working for increasingly better pay.

The costs and benefits of college education are explored throughout Stevenson and Wolfers, with an emphasis not only on the financial returns of going to college, but also the opportunity costs involved in forgoing work to pursue more education. Do the benefits outweigh the costs? Usually, yes—and the benefits for econ majors are even greater!

The true cost of college

You now have the tools you need to assess the true cost of your own college experience. I bet you thought about the cost of college before applying, and you probably looked up the numbers on your college’s website. But you were probably thinking about it wrong. That website probably listed the cost of things such as tuition, housing, meals, books, and health insurance—a list that is surprisingly unhelpful for evaluating the true opportunity cost of attending college.

For that, you need to know: If you weren’t attending college, what would be different? It’s true that you wouldn’t be paying tuition, so that’s an opportunity cost. But you would surely continue to eat, so the cost of food isn’t an opportunity cost. The same goes for the cost of rent and health insurance. College websites always manage to omit the biggest cost of going to college, which is that if you weren’t studying, you would probably be working and earning tens of thousands of dollars. Those forgone earnings are an important opportunity cost that you need to consider.

Yes, going to college involves a large opportunity cost. But hopefully applying the opportunity cost principle to your decisions while you’re in college will help you make sure that the benefit of your college education exceeds the cost.

Students probably don't think about it, but marriage provides more than just companionship and love. It also provides a sort of safety net—especially if your spouse is different from you.

How Marriage Provides Insurance

Here’s an important benefit of marriage: It provides something akin to social insurance. Think about traditional wedding vows: Spouses promise to look after each other “for better, for worse, for richer, for poorer, in sickness and in health.” That sounds like a promise to provide unemployment insurance, disability insurance, and health insurance. Just as unemployment insurance ensures that you’ll still be able to get by when you lose your job, a working spouse effectively provides the same insurance. In both cases, someone—your spouse or the government—will help you pay for groceries if you lose your job. Your spouse can do a better job of insuring you if they don’t face the same risks as you do, which is one reason to marry someone who works in a different occupation or at least for a different employer—you’re less likely to both experience unemployment if you aren’t both working at the same company.

But marriage provides imperfect insurance, because there remains the risk that your spouse will also lose their job. Divorce also provides an escape hatch in which your spouse can fail to provide the promised coverage when a bad event happens.

Economic indicators provide useful insights. But just like blood pressure, heart rate, and EKG readings, each one only tells part of a large and complicated story. Stevenson and Wolfers provide students with a handy guide to interpreting the economic indicators that come up regularly in the news—along with some that don't—and show how they are used to assess the overall health of the economy.

Top 10 Economic Indicators

Okay, now that you know something about how to analyze macroeconomic data, let’s take a look at some key macroeconomic indicators. I often get asked what’s the one indicator that I follow to know how the economy is doing. My response? You shouldn’t only look at one indicator if you really want to know what’s happening. That’s because different types of data tell you different things. Let’s take a look at the top 10 economic indicators those who track the economy follow.

Indicator one: Real GDP is the broadest measure of economic activity. First, there’s real GDP, which measures the total size of the economy. Real GDP is the broadest measure of economic activity since it measures total production, total spending, and total income across the whole economy. It’s typically calculated by adding up all spending in the economy—you know, Y =C + I +G +NX. (See Chapter 9 for a refresher.) You should focus on GDP growth to see how fast the economy is growing. But keep in mind that GDP data are very incomplete when they’re first released.

Indicator two: Real GDI provides a useful cross-check on GDP. There’s another closely related measure of the economy’s total output. An alternative measure called Gross Domestic Income (or GDI, for short) is calculated by adding up total income. Because every dollar of spending is also a dollar of income for whomever received it, GDP and GDI should be equal. In practice, these measurements can differ because they’re each constructed using different data sources with different shortcomings. Early reports of the income data are often more reliable than the spending data, and so GDI often flashes warning signs for the economy sooner than GDP does. In fact, many countries combine income and expenditure measurements to create their primary GDP statistic. The United States doesn’t, so it’s worth tracking both measures.

Indicator three: Nonfarm payrolls tell you if the labor market is improving. Nonfarm payrolls track how many jobs are created each month. It’s called “nonfarm payrolls” because it tracks the number of workers on businesses’ payrolls. Don’t worry about the fact it misses farm jobs because they’re only a small fraction of the economy. Nonfarm payrolls is one of the most important indicators because it’s released soon after the end of each month, and so it provides an early and quite reliable look at how quickly the economy is creating jobs.

Indicator four: The unemployment rate is an indicator of excess capacity. The unemployment rate tells you the share of the labor force that wants a job and hasn’t been able to find one. It’s a snapshot of how strong the labor market is and how easy it is to find a job. It’s important both as an economic indicator—a measure of excess capacity— and also because unemployment is a major source of misery for many people.

Students cae see price discriminination in action as they examine how pharmaceutical companies are able charge different species different prices for the same drug.

Why the same drugs cost less for Fido than for Freddy

You might be surprised to learn that humans and dogs often take the same medications. In some cases, they’re identical—they use the same active ingredients, meet the same FDA rules for quality and purity, and are often made in the same factory by the same drug company. The key difference between the dog and human versions is that people fill their prescriptions at a retail pharmacy, while dogs fill their prescriptions at a veterinary pharmacy.

A study that examined eight of these dog-and-human medications found that the human pharmacy typically charged a price that was around twice as high as the veterinary pharmacy. It’s a simple case of price discrimination— charging different species different prices for the exact same drug. This price differential is targeted to differences in reservation prices, suggesting that people care more about their own health than that of their four-legged friends. Woof!

A comprehensive guide provides useful strategies for future sellers—and valuable insights for every consumer.

Sophisticated Pricing Strategies

As Hurricane Irma passed through the Caribbean it generated winds as high as 185 miles per hour, causing catastrophic damage wherever it made landfall. It destroyed much of the Virgin Islands, killing several people along the way. It then turned northwest, setting its sights on Florida. The governor declared a state of emergency and ordered thousands of people to evacuate.

That’s when one technology lover— the owner of a Tesla electric car—discovered a problem. Their car—a Tesla Model S60— could hold enough charge to drive 200 miles, but it would take a trip of 230 miles to escape the evacuation zone. A quick phone call to Tesla asking for help yielded a surprising result. Quietly, Tesla sent a fragment of computer code to potentially stranded car owners, temporarily unlocking the car’s latent ability to drive further.

You see, Tesla sold two versions of their Model S. The Model S75 came with a 75 kWh battery which gave it a range of 250 miles. The Model S60 was $6,500 cheaper, and as you might expect if it had a 60 kWh battery, it had a shorter range of 200 miles. But in reality, it had the same 75 kWh battery as its more expensive sibling. The only real difference was that Tesla had added a snippet of code to the cheaper car, and it was that line of code—not any physical battery limitations—that gave it the shorter range.

Why would Tesla purposely cripple some of its cars? The answer is that it’s part of a sophisticated pricing strategy. Tesla figured out a way to get different customers to pay different prices for the same good. Price-sensitive customers could pay $68,000 for the S60—as long as they’re willing to live with the shorter range. And less price-sensitive customers could pay $74,500 for the S75 and avoid the hassle of charging the car more often.

It’s a surprising answer to a question that many managers ask: How can I make as much money as I can from each of my customers? Tesla’s answer is to charge some customers more than others. As we’re about to discover, there are many sophisticated pricing strategies you can use to do this. Get this pricing strategy right, and you’ll drive your profits up.

Students probably reach for their phones 100 times a day: It’s a communication device, a camera, a calculator, a library, a music player, a calendar… and so much more. Stevenson & Wolfers show them that economists think of their toolkit the same way: As they master the four core principles of economic decisions, they'll quickly see how these tools can be applied to just about any decision they face, no matter what their major or career aspirations, and also apply these tools to their personal lives.

A Systematic Framework for Making Decisions

The atom is the basic unit of matter, and so physicists begin by trying to understand the atom, and from that, build their insights into the functioning of our physical world. Biologists start with the cell, the basic building block of all living things, and build from there to understand how different organisms live. And for economists, individual decisions—choices—are the foundation of all economic forces. Your decisions, and those of others, collectively determine what’s made, who gets it, and whether it yields fair outcomes. Because these broad economic outcomes are the product of many individual choices, economic analysis always begins by focusing on individual decisions.

This is where the four core principles come in. Together, they provide a systematic framework for analyzing individual decisions. In particular, through the rest of this chapter, we’ll see that whenever economists evaluate a decision:

• We consider the costs and benefits of a choice. (The cost-benefit principle.)
• Before making a choice, we consider the alternatives, asking: “Or what?” (The opportunity cost principle.)
• We think at the margin, always asking whether a bit more or a bit less of something would be an improvement. (The marginal principle.)
• And we are particularly attuned to understanding how different decisions depend on each other. (The interdependence principle.)

Sounds straightforward, right? The challenge is going to be applying these ideas— which we’ll analyze through the rest of this chapter—to the wide array of decisions you’ll face in your life.

This systematic approach provides insight into just about every decision you face. Going shopping? Apply the core principles of economics, and you’ll likely make better choices about what to buy. Trying to decide whether to do further study? We’ll see that the core principles can help you sort out whether that’s a good idea. Thinking of starting your own business? Apply these principles to figure out whether that’s your best choice. Settling down, and trying to decide how many children you should have? Again, apply these principles.

If you get in the habit of thinking about economics through the core principles, you’ll develop a sharper understanding and make better decisions. Speaking of which, you now face an important decision: You have to decide whether to keep reading, or not. Thousands of my past students can attest that the benefit of learning to think like an economist far exceeds the cost. And as you’re about to discover, when the benefits exceed the costs, the first of these principles tells you that it’s a choice worth making.