When thinking about questions from this perspective, there are five useful maxims to keep in mind:
1. There is no free lunch. This maxim does not deny the existence of altruism, but underscores the importance of the idea of alternative cost. Someone may provide a lunch that is free to you, but to the extent that the lunch requires labor, raw materials, and other scarce resources (and every lunch does), there is a cost
to someone. A good measure of that cost is the value of the best
alternative use of those resources as the poet Robert Frost said, “the road not taken.”
2. There is more than one way to skin a cat. This maxim reminds us that in most situations there is an alternative road; there is a choice. It also serves as a reminder that the “best” choice is not something to be decided only on the basis of scientific or technological data. These data are useful, indeed necessary, but they are not sufficient. A rational choice must relate the causeand-effect information that science provides to the values that come from the preferences of the decision maker. For instance, science may be able to tell us how much pollution results from burning a certain quantity and quality of fuel, what the physical and biological consequences are likely to be, and what the cost will be of achieving alternative levels of pollution. What science cannot do is determine the optimal level of pollution; that depends
on the values we assign to the consequences of alternative courses of action.
3. Nature doesn’t make leaps. This maxim, a favorite of the great British economist Alfred Marshall, reminds us that most
choices are made along a continuum -
“anore” or “Â Â Â they’re questions of
less.” For instance, the decision about pollution will rarely be one of “yes” or “no” but rather “how much.”
questions that must be answered “yes”   Even
or “no” by the individual (to marry or not; to retire or not) can be analyzed as continuous
phenomena when studying the behavior of populations (the marriage rate; the retirement rate).
4. There can be too much of a good thing. This warns us that there actually can be too much medical care, too much education, too much of many things that are clearly desirable and useful. We
have too much of a good thing when it is pushed to the point where the cost (the alternative forgone) is greater than the benefit it confers. The quintessential element in the economic perspective is the idea of equality at the margin — that is, balancing the costs and benefits of the incremental or last unit of whatever is being evaluated. When choices are made along a continuum, the optimal level will be where the benefit of a small increment (the marginal benefit) is exactly equal to its cost. Beyond that level, costs usually rise faster than benefits; short of that level, benefits increase more rapidly than costs.
5. Time is money (or its equivalent). This maxim is relevant to the subjects discussed in this book in two ways. First, it reminds us that frequently an important part of the cost of some activity is the time spent doing it. For instance, the full cost of a meal prepared at home must include the value of the time spent shopping and cooking, as well as the money cost of the ingredients. Second, the maxim reminds us that when the cost or benefit of some activity will be realized in the future, a rate of time discount (or rate of return or interest rate) must be applied to obtain the present value of that cost or benefit. For instance, if two alternative occupations yield the same total earnings over a lifetime, but one of them pays more earlier in life, it will have a greater present value than the one that pays later because it affords an opportunity to earn interest on the differential earnings in hand. When alternative courses of action involve costs and benefits that occur at different times, rational decision making requires comparison of the present value of those costs and benefits. Sometimes both applications of the maxim will be relevant in analyzing a single activity, as in deciding whether to go to school now in order to increase earnings later in life. The current cost includes not only tuition, but also the value of the time spent in study. Because the benefits will be realized only in the future, a rate of time discount must be applied so that they can be compared to costs in terms of present value.