Criteria for rationing goods and resources must be established because of scarcity. The highest valued alternative option that must be given up in order to choose an action is called its opportunity cost. When deciding whether to buy a second car, the economic way of thinking indicates that the purchaser should compare the benefits expected from two cars with the cost of both. People buy less beef in response to a rise in the price of beef. A voter supports a politician that favors raising taxes to build a dam the voter opposes.
Farmers produce more bushels of wheat in response to an increase in the price of wheat.
People drive less because of higher gas prices. The decision makers described by economic analysis economize when seeking information. must have essentially perfect knowledge to make choices. The value of a good is subjective. Mediocre economists often consider only the immediate apparent effects of a change, whereas a good economist will also consider effects that may only become observable over time. This statement most clearly emphasizes the fallacy of composition.