ABSTRACT
At the simplest level, an economic agent’s behavior depends on the costs and benefits of any action. When the cost of an action increases, economic theory predicts that less of the action will be undertaken. Likewise, when the benefits of an action increase, economic theory predicts that more of the action will be undertaken. Building on the predicted response of economic agents to changes in costs or benefits leads to the “laws” of supply and demand. Households are demanders in the market for goods and services, but are suppliers of inputs such as land, labor, capital, and entrepreneurship. Likewise, business firms are demanders of inputs, but are suppliers of goods and services.
