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 difference between acting selfishly and acting on the best of our own self- interest. Acting selfishly means that in doing so, you are causing harm to others. Acting in your own self- interest actually benefits others. Adam Smith is known as the father of Economics. In 1776 he purchased The Nature and Causes of the Wealth of Nations. Today the title has been shortened and is known as Wealth of Nations. Smith was asking the question, why powerful countries such as Spain and Portugal collapsed while a small country such as England thrived. The biggest difference he found was that while Spain and Portugal denied their colonies education, England encouraged it. Smith believed that governments have to give people incentive to do well. He stated that self-interest should be encouraged in every person. When people understand their strengths and weaknesses, then they are able to specialize in their field. Specialization leads to better productivity and wealth. Smith speaks of what he calls the Invisible hand theory. This is when a person acts on his own self- interest and in doing so without knowing betters the whole community. Smith said year after year the population would grow. Because