Economics starts with one very important assumption: Individuals act to make themselves as well off as possible.

(Progressive taxes, such as the income tax, fall more heavily on the rich than the poor.)

Income inequality. We care about the size of the pie; we also care about how it is sliced. Economists have a tool that collapses income inequality into a single number, the Gini index.

Economists worry, for example, that too little credit is available for poor families who would like to invest in human capital.

Burger King does not want its employees stealing. And the only way employees can steal without getting caught is by performing transactions without recording them on the cash register—selling you a burger and fries without issuing a receipt and then pocketing the cash. This is what economists call a principal-agent problem.

A tax on red sports cars would be paid only by the rich. A carbon tax would be paid by rich and poor alike, but it would probably cost the poor a larger fraction of their income.

We know that people seek to make themselves better off, however they may define that. Our best hope for improving the human condition is to understand why we act the way we do and then plan accordingly. Programs, organizations, and systems work better when they get the incentives right.

Because we use price to allocate goods, most markets are self-correcting.

In any system that does not rely on markets, personal incentives are usually divorced from productivity. Firms and workers are not rewarded for innovation and hard work, nor are they punished for sloth and inefficiency.