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Third, self-interested behavior can lead to positive social results. For example, when people work hard to make a living, they create economic output. Consumers who are looking for the best deals will encourage businesses to offer goods and services that meet their needs. Adam Smith, writing in The Wealth of Nations , christened this property the invisible hand    . In describing how consumers and producers interact in a market economy, Smith wrote:

Every individual…generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain. And he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention…By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.

The metaphor of the invisible hand suggests the remarkable possibility that broader social good can emerge from selfish individual actions.

Fourth, even people who focus on their own self-interest in the economic part of their life often set aside their own narrow self-interest in other parts of life. For example, you might focus on your own self-interest when asking your employer for a raise or negotiating to buy a car. But then you might turn around and focus on other people when you volunteer to read stories at the local library, help a friend move to a new apartment, or donate money to a charity. Self-interest is a reasonable starting point for analyzing many economic decisions, without needing to imply that people never do anything that is not in their own immediate self-interest.

Choices ... to what degree?

What have we learned? We know that scarcity impacts all the choices we make. So, an economist might argue that people do not go on to get bachelor’s degrees or master’s degrees because they do not have the resources to make those choices or because their incomes are too low and/or the price of these degrees is too high. A bachelor’s degree or a master’s degree may not be available in their opportunity set.

The price of these degrees may be too high not only because the actual price, college tuition (and perhaps room and board), is too high. An economist might also say that for many people, the full opportunity cost of a bachelor’s degree or a master’s degree is too high. For these people, they are unwilling or unable to make the tradeoff of giving up years of working, and earning an income, to earn a degree.

Finally, the statistics introduced at the start of the chapter reveal information about intertemporal choices . An economist might say that people choose not to get a college degree because they may have to borrow money to go to college, and the interest they have to pay on that loan in the future will affect their decisions today. Also, it could be that some people have a preference for current consumption over future consumption, so they choose to work now at a lower salary and consume now, rather than putting that consumption off until after they graduate college.

Key concepts and summary

The economic way of thinking provides a useful approach to understanding human behavior. Economists make the careful distinction between positive statements, which describe the world as it is, and normative statements, which describe how the world should be. Even when economics analyzes the gains and losses from various events or policies, and thus draws normative conclusions about how the world should be, the analysis of economics is rooted in a positive analysis of how people, firms, and governments actually behave, not how they should behave.


Smith, Adam. “Of Restraints upon the Importation from Foreign Countries.” In The Wealth of Nations . London: Methuen&Co., 1904, first pub 1776), I.V. 2.9.

Smith, Adam. “Of the Propriety of Action.” In The Theory of Moral Sentiments . London: A. Millar, 1759, 1.

Questions & Answers

describe the producer's scarce resources.. I.e land,Labour,capital and enterprise
Alfhah Reply
What are human behaviour?
Regina Reply
how can you describe economic goods in a much better easier way?
Alfhah Reply
what is deman and supply
Aruna Reply
Demand can be defined as the ability and willingness to buy commodities in a given price of goods and services in a particular period of time
supply refers to the ability and willingness to offered commodities for sale in a given price of goods and services in a period of time .
Demand can refer to the ability and willingness to purchase a commodity at a giving price and time.
what must the producer do if total costs exceed total revenue
Mmusi Reply
raise price
scarcity resources sample
nawala Reply
what's scarcity
tumelo Reply
what are the two types of economic theory's?
Lizabeth Reply
i thick it is microeconomic theory and macroeconomic theory. or it can be normative and positive economic theories.
with diagrams show thé change in prices in thé different time period that can result in an increase in demande
Fankam Reply
define momentary period
What is a monopsony?
Allan Reply
monopsony is a situation where only one buyer is available in the market
And with many sellers?
to be more specific, oligopsony is a situation with many sellers but few buyers
Thank you
economic is tha process of banking
hashmat Reply
Pls can u explain it into details
Cause I don't understand what you are saying
brownies price is 5$ quantity demand is 5000$ supplied is 3000 if brownies are not taxed how many are consumed?
Fel Reply
what is unemployment
Rita Reply
ok so what would u say is supply in your own terms
Odessa Reply
why the demand curve is downwards sloping and supply upward sloping
Odessa Reply
the dd curve is downward sloping because consumers dd less when price is high and vice versa the ss curve is upward sloping suppliers are willing to produce more when prices are high
what is dead weight loss
when the prices of supplies slop upward then the prices of demand curve will increases downward

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