1. Introduction to Economics

“A nation is not made wealthy by the childish accumulation of shiny metals, but it is enriched by the economic prosperity of it’s people.”
Adam Smith

Why are some countries consistently rich while others are persistently poor? Why are some goods and services cheap while others are expensive? And why is it that even within the world’s richest countries there are huge differences in in- comes and living standards among different parts of the population?

Economics tries to answer these questions by studying how the world’s finite resources are allocated, based on the decisions of economic agents (people, firms, governments) and the interactions amongst them. Hegemony is a board game that simulates those decisions and interactions in a fictional state that faces many of the same challenges and dilemmas as real-world economies do.

Economists try to tackle those challenges based on theories and assumptions about how economic agents behave. One such assumption is that people, firms and governments are rational. This means that they have clear preferences (they know what they want) and they act to achieve their objectives. For example, people are assumed to know exactly what type of car or house they want to buy, and to do everything they can to be able to buy and enjoy the goods they desire.

Economic analysis is also premised on the idea that people’s desires exceed their limited resources, making it necessary to make trade-offs. A trade-off is a balance, or a compromise, achieved between two desirable but incompatible options. An example of such a compromise is balancing work and leisure. While work generates an income that can be used to buy goods and services that can be enjoyed, its negative side effect is reducing the amount of time available for leisure. Every person, firm and government has limited resources and needs to make frequent trade-offs.

Any choice that an economic agent makes has an opportunity cost. The opportunity cost of a good is another good that is given up. For example, the oppor- tunity cost of an hour of leisure is the wage that the person could have earned during the time spent not working.