Aid and the Soft Budget Constraint* Form

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♪ [music] ♪ [Joana] To get a better understanding of how we make choices, we first need to understand the elements that go into making a decision. And not all of them are within our control. The world is constantly, invisibly determining the prices of goods and services. Take the price of a cup of coffee. It depends on so many variables. Think culture, demographics, the cost of beans, the weather, the supply and demand for oil, even the high rent at your hip neighborhood coffee shop. You get the idea. All of this economic activity is magically being simplified into a price for a cup of coffee. How about your salary -- the price of one hour of your labor? It depends on you, of course -- on your skills and effort. But it also depends on many factors outside of your control. For example -- the demand for your services, nearby competition, even how fun your job is. Every day you make decision after decision about what to buy, comparing hundreds of different goods and services.