Economics for Leaders Rational Decisions Occur at the Margin All or nothing decisions are extremely rare. Most decisions are best made by by weighing the expected costs of the next increment: For example, the decision is not “Should we paint the house”? But “Should we paint the house or wait a year” or “Should we paint the house ourselves or hire someone to do it”?

Economics for Leaders People Respond to Incentives Incentives are rewards or punishments that influence people’s decisions. When incentives change, people’s behavior changes in predictable ways. Incentive are shaped by a society’s institutions, the formal and informal “rules of the game”

Economics for Leaders Prices are Extremely Powerful Incentives Prices change in dynamic economies as the relative demands for and supplies of goods, services, and resources changes. The changing prices change people’s opportunity costs and thus, the choices they make.

Economics for Leaders Voluntary Trade Creates Wealth Voluntary trade occurs only when both parties expect to benefit from the exchange. Giving up things of lesser value for things of greater value makes all parties to the exchange better off. Specialization allows people to produce more by concentrating on what they do best and trading their surplus goods or services to obtain other goods and services. Society benefits as producers specialize in what others value.