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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.

References

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

What is captalizeg
Saminu Reply
What is socializing
Saminu
What is socializing
Saminu
What is socializing
Saminu
what is demand
Oforiwaa Reply
demand is the quantity of a good that consumers are willing and able to purchase at various prices during a given period of time.
Modest
what is opportunity cost
Aboubakar Reply
what is gini coefficient?
Khalipha Reply
Never heard of that!!!!
Abdulrahmon
ive heard about it Actually i know it..
Shamamet
In that case, you have to help us.
Patrick
Another name for Absolute cost advantage
fatimah Reply
what is the difference between demand and supply
Peter Reply
what is the national income
Kamara Reply
oils and resources
Peter
it is the sum of all incomes earned by factors of production usually a year
C-Stixxs
What's current account?
Che Reply
Demand refers to goods and services that the buyer is willing and able to buy at a price over a period of time
Che
Can it be possible to have two level of comparative advantage in a country ?
Louise Reply
.no.its not possible
Asanda
Why ?
Louise
I think no possible
Sadiq
No
Nwanne
No resources are scare for a country to have a comparative advantage and it discourages external trade
C-Stixxs
each country are meant to Specialize on 1 production activities
C-Stixxs
why do oligopoly increase on the elastic segment of the demand curve
Tintswalo Reply
what is all about production possibility curve
Nice Reply
help me about the assumption of possibility curve
Nice
-The quantity and quality of economic resources are fixed. -only two types of goods can be produce out of this resources (that is,producer and consumer goods). -Resources are fully utilised. -The resources are mobile. -The state of technology is constant.
Louise
What is utility
chisom Reply
it is the satisfaction derived from d consumption of goods and services
C-Stixxs
what is opportunity cost
Aboubakar
what is the meaning of money and inflation
Tinuke Reply
Money can be define as anything acceptable as a medium of exchange and mean of payment
Cynthia
inflation is when everything seemed to cost so much less
Nwanne
Inflation is d persistent rise in level of goods and services in a country
C-Stixxs
Inflation is the persistent increase in d general price level of goods n services
C-Stixxs
what is a bar chart
Godwin Reply
what's economic
John Reply
Economics can be define as a study of how human beings make decisions in the face of scarcity it can also be define as using one wealth to make more wealth
Cynthia
Or in Nigerian way Economics is a science (social science) which studies human behavior as a relationship between Ends and Scarce which have alternative uses
Cynthia
Economics is the study of how human make decision in the face of scarcity
Nwanne

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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