Criterion 1: Costs and Prices-How Production is Determined

We live in a world of scarcity. There isn’t enough of most things to allow people to have as much as they want. This fact is economic bedrock. From it follows the necessity of making choices in order to obtain the most satisfaction possible from our limited resources. Economics is the study of the trade-offs human beings make when they choose among scarce goods.

An economics textbook should clearly and thoroughly explain that economics is the study of human action in the face of scarcity, working through the basic concepts of cost (including opportunity cost), value, prices, incentives, trade-offs and efficiency. The student needs to understand early on that "the economy" is an interconnected web of rational decisions, and that the purpose of a course in economics is to explain why and how people make the decisions they do, and the impact those decisions have on the whole.

For example, it is essential to explain how the price system allocates resources. Even if the phrase "spontaneous order" is never used, the text must convey the meaning of this term to the student—that a free price system serves to direct people in deciding what to produce and how to produce it so as to make the most efficient use of scarce resources. The meaning and importance of profits and losses needs to be explained, as well as the concepts of equilibrium price, shortage, and surplus.