Often, people will make choices that seem illogical, or economic events will leave us mystified. The following are basic economic principles which can help you understand most everything related to economics. They choose the alternative that seems best to them because it involves the least cost and provides the greatest benefit compared to any other alternative. Every choice involves cost. When you do one thing you are giving up the chance to do something else.
People respond to incentives in predictable ways.
Government does many things to get us to behave in certain ways. For example, governments put high taxes on items that they want us to consume in limited amounts, such as cigarettes, alcohol, or gasoline. Economic systems influence the choices that we make. We operate based on the rules of our economy. Capitalism affords us many opportunities that people living in a communist economy do not have.