The world is made up all types of economic systems that undergo billions of transactions every day, the vast majority without any government involvement. Too much government interaction can lead to the failure that occurs in the Soviet Union. For example, a soviet official visited an American pharmacy and recognized how everything worked in harmony. He asked how this is possible and the answer was simple economics. A store sells products and the companies produce items that stores want to stock. But why is it that we have rich people with private jets and in the same place homeless people? In the market economy, most markets are self-correcting and produce competition. Fixed-price market systems, such as communism/socialism, there is no competition in prices but in quality. A gas station in South Africa might have concierges who clean your car and wear bowties. Firms, consumers, workers all work in their best interest. The real question is how it all works. Economics starts with the fact that individuals act to make themselves as well of as possible. This is not actin selfishly but maximizing utility. Life is about tradeoffs/opportunity costs and so is economics.
People commit to crimes because they have a larger gain if they succeed than if they fail. The results outweigh one over the other. People believe that there are more benefits if they succeed than the failures of the same task. They don’t care about the risk of getting caught when the opportunity of getting money is possible. It is also easy to be a “free rider” and let someone else do the work and contribute. Just like this theory says, many tourists and safari operators do exactly what this specifies. One company who invests in conservatism can lead to another who gains more in that effort. In many systems, incentives matter the most. Personal incentives are usually separated with productivity. Good policy uses incentives to channel behavior and productivity. Bad policy ignores incentives/bribes to predict behavioral changes. Everything in society is run by incentives to do things but is actually not good. The challenge is to ensure that creating incentives doesn’t damage the society. There are many measures to control incentives such as taxes and government intervention.
In this chapter, externality is when the private costs of someone are different than the social cost of the same thing. When externalities are large and prevalent, individuals have incentives to do thing that pushes them ahead of society. One crucial role for government in a market economy is dealing with...