Robinson Crusoe economy
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A Robinson Crusoe economy is a simple framework used to study some fundamental issues in economics. It assumes an economy with one consumer, one producer and two goods. The title "
As a thought experiment in economics, many international trade economists have found this simplified and idealized version of the story important due to its ability to simplify the complexities of the real world. The implicit assumption is that the study of a one agent economy will provide useful insights into the functioning of a real world economy with many economic agents. This article pertains to the study of
In the Robinson Crusoe economy, there is only one individual – Robinson Crusoe himself. He acts both as a producer to maximise profits, as well as consumer to maximise his utility. The possibility of trade can be introduced by adding another person to the economy. This person is Crusoe's friend,
The basic assumptions of the Robinson Crusoe economy are as follows:
Robinson Crusoe is assumed to be shipwrecked on a deserted island. Similar to the choices that households (suppliers of labour) face, Crusoe has only two activities to participate in – earn income or pass his time in leisure.
The income generating activity in this case is gathering coconuts. As usual, the more time he spends in leisure, the less food he has to eat, and conversely, the more time he spends gathering coconuts, the less time he has for leisure. This is depicted in figure 1.