# Introduction and Basic Principles ## Overview > [!caution] Scarcity > > Economics is about how society distributes scarce resources. - Basic concepts: - When people maximize their interest society wins. - The cost of doing something is the opportunity that is given up. - Trade makes people better off. - Rational people take an action only when the marginal net benefits of that action are positive. - Guiding questions - Why do we need economics? What is the main economic problem? - What are the opportunity costs of obtaining a good or engaging in an activity? - Why should trade always lead to higher benefits to those involved? - What are the differences between marginal benefits (costs) and average benefits (costs)? ## What Is Economics? - How to distribute Dr. Jose to economics learners? - We need economics, because there is always more than one way of distributing limited resources amongst people who want it. - Where there is limited resources, economics has something to say about it. ## Opportunity Costs > [!tip] Opportunity Cost > > The value of the next best alternative that is _given up_ to engage in an > activity of exchange > > "It's perfectly simple without being perfectly obvious." ## Net Marginal Benefits Principle - Opportunity cost is about the _next_ action == _marginal action_, not the average action > [!tip] Net Marginal Benefit > > Rational people take an action _only_ when marginal (extra) benefits of that > action are higher than the marginal costs. ## The Invisible Hand Principle Proposed by Adam Smith. If everybody behaves to maximize their own benefit, society generates the greatest welfare. ## Trade Each of us decides to specialize on something, and trade it with others. > [!tip] Princple > > Trade creates value. People who engage in the trade, see value in the trade.