A fundamental assumption for economic analysis is that economic agents, be it an individual, a household or a firm/business, tend to make choices and select alternatives rationally. The rational economic choice (decision) implies that
people are driven by the rational pursuit of self-interest, and engaged in economic decisions
to maximize this self-interest.
By
rational economic choice
, economists mean that people try to make the best choice they can, given the available resources at their disposals (money, time, etc.) and information.
Self-interest
is when individuals make economic decisions that are in their own best interest. On the other hand, s
ocial interest
is when choices are made that benefit society as a whole. Economists argue that social interest can be attained by individual decision makers acting in their own self-interest. This process is what Adam Smith called the
invisible hand
, which has been the foundation of the market economy.
Create an example to demonstrate how an individual or firm acting out of self-interest to maximize profits by offering goods or services in economic markets benefit consumers – even if they do not care about them. In other words, how does self-interest help achieve society’s economic goals?
What is the relationship between self-interest and social interest in the economic decision (economic choice) process? Is there a conflict between the two in the economic world