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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

using the graph illustrate all the types of elascity
Umar Reply
ha
Nathaniel
.
Anjali
Given the budget deficit in recent years, some economists have argued that by adjusting Social Security (SSNIT) payments for inflation using the CPI, SSNIT is overpaying recipients. Discuss the argument being made, and do you agree or disagree with it?
Louis
distinguish between increase in demand curve and extenaion in demamd curve
Farhan Reply
what are the shapes of an indifference curve?
Ovensi Reply
division of labour is simply the breaking of job functions so that each individual is engage to one set or the other for easy delivery
EMMANUEL Reply
What is division of labor
peter Reply
it is also simply the breaking down of work into various part so that each individual is entitle to one for easy delivery
EMMANUEL
it is the simplifying of tasks into smaller easily workable divisions where each person specialises on what they understand better
cabs
ok
EMMANUEL
thanks for your briefing and time
EMMANUEL
What is labour market
Daniel
What is specialisation
Nyaradzai
What is market structure
Peters
What is money and inflation
Peters
What is national income
Peters
money is a kind of exchange medium
konglan
money is something that is a medium of exchange,store of value ,measure of value and a medium of deffered payment
Koushik
inflation is a situation of cont rise in prices over a period of time
Koushik
what are the types of elasticity of demand
Asifat
what are the sources of monopoly power?
Winnerman Reply
the first source, are informations
amine
political power and influence in monetary institutions
Shahul
what is imperfect competition ?
SHAH Reply
the situation in which elements of monopoly ( R&D, EOS and stability of prices etc.) allow individual producers or consumers to exercise some control over market prices
Ghulam
how to find shut down
Sowmya Reply
where p is less than avc
Koushik
s
Shahul
which is the best public finance economics text book?
Shahul
hello
shafiullah
hello
Shahul
Yes hi
Pov
....
SHAH
what are the alternatives various of economic system
olaleye Reply
what is microeconomics
Ayedun
Micro-economics refers to the branch of economics which deals with smaller unit or element of the economy.
Amadu
or Is the study of individual economic unit in a economy..
Neriel
micro economis is the studay of how Households and firms make decision and they interecr it.
mahad
what is financial intermediaries?
Imran Reply
financial intermediaries are those who are link between borrowers and lenders for.eg bank... Bank is a financial intermediary
Ajit
tnx a lot of u
Imran
most welcome
Ajit
why do you here ? why do you want to learn economics
Ajit
والله العظيم انا ماعاوز اتعلمها
انا باخدها غصب عني في الكليه حضرتك
لس كدااا
I am student of ecnomics ,
Imran
Imran
Abdi
yes Abdi temam
Imran
am good too see you
Abdi
tnx why not
Imran
b/c im student
Abdi
great, now I am sleeping see u nex time ok
Imran
ok
Abdi
OK
Ajit
what is the law of dimis
Toyin Reply
what is the feature of public ownership of production factors
Toyin
what is the demand for commodity that posses identical utilities called
Toyin
law of diminishing utility...as the quantity consumed of a commodity increases,the utility derived from each successive unit goes on decreasing... condition___ consumption of other commodities remaining the same.
Malik
sorry it's...Law of diminishing marginal utility
Malik
demand for commodities that posses identical utilities? The commodities having identical utilities are perfect substitutes...and the demand for such type of commodities is called "Competitive Demand".
Malik
thanks
Toyin
Why many people can't differentiate Economists and financial analysts
Hatimu
what is the function of the central bank in an economic?
Toyin
the central bank may lend some money to banks if necessary
konglan
what economics
Toyin Reply
Is this a question?
Tala
is the study of how societies allocate and manage their scare resources
Neriel
What is populatiin
Azer Reply
Population is a number of people living in a particular area within a particular time
Rabby
Population is the number of people living in a particular geographical area within a particular time
Rabby
how does this chat work
Dalaya
ya the ideas are good thanks friends
South
so what's the next question?
South
what is demand schedule
Toyin Reply
is a tabular representation of the quantity demanded of a particular product at a particular price over a given period of time
Loveth
thanks
Toyin
you are welcome
Loveth
ok
Hassan
What is Monetary Mass
Acha Reply

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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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