Naked Economics Read Online Free PDF Page B

offset by the disutility of spending many years in a federal prison. (But those are just my preferences.) More seriously, many of our important decisions involve balancing the value of consumption now against consumption in the future. We may spend years in graduate school eating ramen noodles because it dramatically boosts our standard of living later in life. Or, conversely, we may use a credit card to purchase a big-screen television today even though the interest on that credit card debt will lessen the amount that we can consume in the future.
    Similarly, we balance work and leisure. Grinding away ninety hours a week as an investment banker will generate a lot of income, but it will also leave less time to enjoy the goods that can be purchased with that income. My younger brother began his career as a management consultant with a salary that had at least one more digit than mine has now. On the other hand, he worked long and sometimes inflexible hours. One fall we both excitedly signed up for an evening film class taught by Roger Ebert. My brother proceeded to miss every single class for thirteen weeks.
    However large our paychecks, we can spend them on a staggering array of goods and services. When you bought this book, you implicitly decided not to spend that money somewhere else. (Even if you shoplifted the book, you could have stuffed a Stephen King novel in your jacket instead, which is flattering in its own kind of way.) Meanwhile, time is one of our most scarce resources. At the moment, you are reading instead of working, playing with the dog, applying to law school, shopping for groceries, or having sex. Life is about trade-offs, and so is economics.
    In short, getting out of bed in the morning and making breakfast involves more complex decisions than the average game of chess. (Will that fried egg kill me in twenty-eight years?) How do we manage? The answer is that each of us implicitly weighs the costs and benefits of everything he or she does. An economist would say that we attempt to maximize utility given the resources at our disposal; my dad would say that we try to get the most bang for our buck. Bear in mind that the things that give us utility do not have to be material goods. If you are comparing two jobs—teaching junior high school math or marketing Camel cigarettes—the latter job would almost certainly pay more while the former job would offer greater “psychic benefits,” which is a fancy way of saying that at the end of the day you would feel better about what you do. That is a perfectly legitimate benefit to be compared against the cost of a smaller paycheck. In the end, some people choose to teach math and some people choose to market cigarettes.
    Similarly, the concept of cost is far richer (pardon the pun) than the dollars and cents you hand over at the cash register. The real cost of something is what you must give up in order to get it, which is almost always more than just cash. There is nothing “free” about concert tickets if you have to stand in line in the rain for six hours to get them. Taking the bus for $1.50 may not be cheaper than taking a taxi for $7 if you are running late for a meeting with a peevish client who will pull a $50,000 account if you keep her waiting. Shopping at a discount store saves money but it usually costs time. I am a writer; I get paid based on what I produce. I could drive ninety miles to shop at an outlet in Kenosha, Wisconsin, to save $50 on a new pair of dress shoes. Or I could walk into Nordstrom on Michigan Avenue and buy the shoes while I am out for lunch. I generally choose the latter; the total cost is $225, fifteen minutes of my time, and some hectoring from my mother, who will invariably ask, “Why didn’t you drive to Kenosha?”
    Every aspect of human behavior reacts to cost in some way. When the cost of something falls, it becomes more attractive to us. You can learn that by deriving a demand curve, or you can learn it by shopping the