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Economic TheoryEconomic theory is rooted in the notion that individuals seek to maximize the realization of their own interests or “utility.” The most fundamental manifestation of this phenomenon is the individual attempt to secure as much benefit for as little work or money as possible. When large groups of individuals engage in such behavior, systems of exchange rapidly emerge. People begin to specialize in the provision of goods and services that others want. They trade those goods and services for things that they want. To facilitate these exchanges, virtually every economic system develops a common currency: money. In a cash economy, the same principle of utility maximization holds. Individuals seek to pay as little as possible for the best goods and services they can get. Prices are established over the course of thousands and thousands of such exchanges and the available supply of a good or service and the demand for it eventually come into balance. An economic system in which individuals are free to choose what kinds of goods and services they will provide for how much money and, in turn, which goods and services they will spend their money on, is called a “free market economy.” The economic system in the United States is an example of a free market economy.The key concepts required to understand free market economics are
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