The Paradox of the Invisible Hand

The Paradox of Thrift

Fallacy of Composition

A single farmer who has a bumper crop and produces significantly more food will likely see their income increase. If, due to perfect weather, all farmers in a region have a bumper crop and the total amount of food produced increases dramatically, what is the most likely impact on the total income for the farming sector as a whole?

A single firm can increase its competitiveness and profits by reducing the wages it pays its workers. Therefore, if all firms across the economy reduce the wages they pay, total business profits for the economy as a whole will necessarily increase.

Evaluating Economic Advice During a Downturn

Individual Prudence vs. Collective Outcome

Individual vs. Collective Financial Decisions

For each individual action described, match it with the most likely outcome if that same action were taken by everyone in the economy simultaneously.

While a single household can improve its financial position by paying off its debts, if all households in an economy attempt to do so simultaneously by drastically reducing their spending, this can lead to a widespread drop in incomes. This collective action paradoxically makes it ____ for the average household to become debt-free.

A key challenge in studying the economy is that an action that is beneficial for an individual may have a very different result when everyone takes that same action. Arrange the following statements to reflect the logical progression of reasoning an economist would use to analyze this type of situation and uncover a potential counter-intuitive outcome.

Critiquing an Economic Argument

A single country can often improve its trade balance and protect its domestic industries by imposing tariffs on imported goods. Based on the principles of how a large-scale economy behaves, what is the most likely outcome if every country in the world simultaneously imposes significant tariffs on all imports?

An Integrated Model of the Aggregate Economy