Trillion Dollar Economists

Chapter 2An Easy Introduction to Economics

If you’ve made it through the first chapter, you’re now probably asking an important threshold question: How much economics do I have to know to understand what follows? The answer is, not much, and what you do need to know before you plunge in, I will now tell you. For readers who have taken economics but forgotten a few things, this refresher may also be helpful. In whatever camp you fall, you will learn the rest of what might be useful to know before you read coming chapters. You will also discover how the economic ideas featured in these chapters use or build upon one or more of the following concepts.

Rationality

First, most economists assume that all actors in the economy behave rationally—that is, they act in their self-interest, even if that interest includes altruistic behavior, from which many people derive pleasure. Actually, the notion of pleasure, or utility, is a philosophical idea that predates modern economics and is associated with the British philosopher Jeremy Bentham, who argued that people act in such a way as to maximize their total utility. More sophisticated versions of this concept have appeared since in the writings of many economists, but the notion is that people are made happier more by the pleasure they derive out of doing various activities and, yes, buying things, than from accumulating money per se. Now, it is true that a large majority of people would rather have more money than less, but all of us ...