Self-interest, defined as concern for one's own advantage and well-being, plays a crucial role in achieving success for consumers, firms, and society. It encompasses both psychological and economic aspects and refers to actions taken by individuals for their personal benefit. Adam Smith's theory of the invisible hand highlights the individual pursuit of self-interest in a free market economy that leads to the most effective interest of society as a whole. The natural motion of costs and flow of trade resulting from the continuous interchange of individual pressures on market supply and demand creates the best social and economic outcome. Thus, free markets made of economic representatives who act in their self-interest eventually deliver optimal social and economic results.

The pursuit of self-interest benefits society by having individuals working towards their own advantage, which ultimately leads to the greater good. When people act in their own self-interest, they engage in behaviors that directly or indirectly benefit others, such as working hard to earn a higher income, creating products and services that meet consumer needs, and contributing to economic growth. Thus, the pursuit of self-interest fuels a prosperous economy that benefits society as a whole.

For firms, self-interest is a necessary motivation that drives the creation of new products and services, enhances productivity, and leads to innovation. It allows firms to allocate resources effectively in a competitive market to achieve their business goals. By pursuing self-interest, firms can maximize their profits, expand their operations, and create jobs, which eventually contributes to overall economic growth.

Self-interest is also beneficial for consumers as it provides them with a sense of autonomy and freedom to make choices in their best interest. Consumers can use their purchasing power to obtain better goods and services at competitive prices in a free market economy. The pursuit of self-interest by firms leads to product differentiation, which gives consumers more choices that meet their needs and preferences at a reasonable price.

Question 2:

Gross Domestic Product (GDP) is a crucial measure of a country's economic size and health over a specific period. It serves as a comparative tool for evaluating the size of different economies over time. Three methods are used to measure GDP: the value-added method, income method, and expenditure method.

The value-added method is the most direct approach to calculate GDP as it measures the output of all economic sectors. It requires estimating the gross value of output resulting from domestic economic activity and subtracting the value of all purchased goods for production. The residual output is the GDP, which can be calculated using the formula 'GDP = VOGS - IC.'

The income method estimates GDP based on the total of primary incomes derived from capitalism, land, labor, and profit. The sum of all primary incomes is used to measure economic output, as they are essential inputs for creating goods and services. To calculate the GDP, the formula 'W + R + i + P +IBT + D + F' is used, where all incomes from labor, rent, interest, profit, IBT, depreciation, and net foreign factor income are summed up.

The expenditure approach measures all spending on final goods and services, including private consumption, total investment, government spending, and net exports. The GDP is calculated by adding up all these economic activities, using the formula 'GDP = C + I + G + NX.'

In conclusion, GDP is an essential indicator of economic performance, measuring the total value of goods and services produced over time. The three different methods of calculating GDP - the value-added approach, income method, and expenditure approach - have their unique benefits and limitations, but all aim to provide a nominal value that represents a country's economic activity.

The government's function of providing public services is essential to ensure the well-being of citizens. The provision of services such as healthcare, education, and maintenance of roads are beyond the scope of a free market. By providing these services, the government ensures that all citizens have access to them regardless of their financial standing. This helps to reduce inequality and promote social welfare. Additionally, street lighting provides a safer environment, thereby boosting economic activities during the night, which enhances the economy.

Another economic function of the government is the regulation of markets. Market regulations limit market failure by ensuring that information about goods and services is accurate and accessible to all consumers. Moreover, regulations on monopolies and other market structures promote competition, leading to lower prices, better quality products and services, and increased innovation. Additionally, regulations can protect the environment and public health and safety, benefitting citizens' welfare.

In conclusion, the government's economic functions involve macroeconomic management, regulation of markets, protection of private property, provision of public services, and social protection. Although all these functions are important, the discussion has highlighted the significance of the protection of private property and regulation of markets even further. Both functions promote economic growth and social welfare and help to create a level playing field that benefits all citizens.