No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter One: Introduction to Economics 23 (often subconscious) cost/benefit analysis . This goes well beyond how we spend our money. Do I get out of bed this morning? Do I wear green or blue? Even these choices are assessed internally: do the benefits of staying in bed (more sleep) exceed the costs (being late for work or class, or a shorter shower than you like)? If I choose to wear green, it comes at a cost of not being able to wear blue (or red, yellow, or purple). Mentally, we assess whether the benefits of green exceed the benefits of other colors. While we may think “I just felt like green today,” we felt that way as a result of a cost/benefit calculation (perhaps subconsciously). Action implies choice, and choice implies cost/benefit calculation, and subjective cost/benefit calculation is a key part of our internal planning process. Our internal planning process is not perfect, and often what we imagine will lead to something good is, in fact, quite bad for a variety of reasons. First, we may not have the right means/ends causal framework. In other words, I may think that if I do X, it will lead to Y, but in reality it will lead to Z. When I get Z instead of Y I will be disappointed, and this will guide my future planning process. Second, our plans are ours alone, and God may have other plans that do not agree with ours, such that our plans will be frustrated. Economic analysis will often use models , which are a simplistic way of viewing the world. While simplistic, these models can provide significant understanding by isolating the important drivers of a market from lesser influences. You will see models employed in subsequent chapters, but for models to be effective, we often have to employ the assumption of ceteris paribus , or “all else equal.” As we change one variable, we assume all other variables stay constant. For example, if we are trying to understand the supply and demand for orange juice, we might assume a freeze in Florida reduces the supply of oranges. In our analysis we’ll hold other things constant, such as the demand to drink orange juice. In the real world, everything is changing simultaneously to a degree, but by assuming ceteris paribus we are able to learn how one economic change influences markets. Plan coordination is one of the central features of an economic system. We all have plans ranging from what we want to do this weekend, to what we want to do this summer, to what we want to do in our vocation in life. Do I want to go to the concert or invite some friends to go to the movies? Should we go to Hawaii for our family vacation (yes!!) or stay closer to home to save money? Should I become a welder or a computer programmer? To answer each of these questions we must apply economic reasoning, and almost all of our choices are dependent upon the actions of others. If I decide I want to go to the concert, how can I be sure the band will be there? If the band decides to come, how can they be sure their bus driver will go? How can the bus driver be sure there will be gas stations along the way? What about food? When the band arrives, how do I know the concert hall will be open, that the facilities will be clean, or that there will be parking? How will I get to the concert? cost/benefit analysis: the process of evaluating a possible action by comparing the costs of an action to its benefits models: a simplified description of the processes a scientist wants to understand ceteris paribus: “with other things the same,” or “all else equal” plan coordination: the continual process of adjusting our individual economic plans and associated actions with the plans of others (as represented by the market realities each individual faces)