1.) Write an essay on the assumption of the “Rational Self Interest”. Make sure that you touch on each of the three components of this assumption that we discussed in class. Comment on the relevance of this assumption in our daily lives.
Economics is defined as how we make choices with scarce resources to obtain our own needs, wants and desires. The Assumption of Rational Self –interests tells us that the definition of rationality means not doing something that will deliberately cause harm. We are told that with every decision we make, we must weigh the rewards against the punishments and that it is actually necessary for us to ask the question “What is in it for me”. There is actually a ...view middle of the document...
Smith was one of the first to suggest vent for surplus, or the concept of global trading. This is the foundation of our economic foundation today. In asking what’s in it for me, the US has specialization, education is encouraged for all people, and we are free to seek out what we do best. The U.S. economy is built upon the Laissey Faire philosophy (free enterprise) that says government should leave businesses alone. This along with trading allows us to have the variety of goods to choose from, and the strongest economy in the world. An example of how this relates to my own personal life is this; I was previously working in a career that didn’t make me very happy. My desire to work better hours and make more money led me back to school. In educating myself I will make a larger contribution to my family and communities. Although I’m doing what is best for me, it will have a positive impact on others around me.
2.) Explain the economic problem and how it is used to define the study of Economics. How does the concept of scarcity give rise to the concept of Economic cost?
The economic problem is; there are limited resources to satisfy unlimited human needs, wants and desires. Resources are found in different states.
•Natural resources (free gifts of nature such as land or an apple on a tree)
•Human Resources (labor)
•Man made resources (capital, or when an apple is made into apple juice)
•Entrepreneurship and technology.
These limited resources force us to prioritize in order to make choices geared towards what is most important to us. Economics is how we make choices with scarce resources to obtain these needs, wants and desires. The study of economics answers four central questions; who decides what goods to produce (consumers vote with their dollars and tell businesses what to produce), how are goods produced (businesses look for efficiency), who gets the goods produced (the consumers), and who produces what? (The business that produces the best product at the cheapest price).Economics explains causes and effects. Ceteris paribus (meaning everything else being equal) allows economists to develop one to one cause and effect relationships in isolation. Ceteris paribus isolate one factor at a time in an experiment or study. It allows researchers to identify cause and affect relationships removed from all other factors. The study of economics is divided into two areas. Macroeconomics analyzes the behavior of the market as a whole while micro economics focuses on individual and firm behaviors. There are two different approaches to the study of economics. These approaches are described as positive and normative economics. Normative economics is a subset of economics founded on value judgments and leading to assertions of what ought to be (opinions are added to fact). Positive economics is a subset of economics that analyzes the way the economy actually operates (involves reporting facts without opinions). For every decision we make as...