The Economics of Robinson Crusoe

In any economic analysis, the determination of work effort, production, and consumption depends on opportunities for production and on preferences about working and consuming. This basic interaction between opportunities and preferences shows up even in the simplest possible economy, which consists of isolated individuals, each of whom resembles Robinson Crusoe. In this setting, which we develop in this chapter, we can readily analyze the economy’s responses to changed opportunities in terms of wealth effects and substitution effects. The primitive environment of Robinson Crusoe contains the essence of choice problems that arise in complicated market economies. Therefore, the principal findings from this chapter remain valid when we extend the analysis in later chapters to settings that look more like modern industrialized economies.