Unit 1.2 - Economic Theorists: Adam Smith

Question 1

Adam Smith

Answer 1

• Father of Modern Economics
• 18th Century economist, philosopher and author
• Against mercantilism
• Book: “Theory of Moral Sentiments”

Question 2

Adam Smith believed in…

Answer 2

• idea of Invisible hand=tendency of free markets to regulate themselves using competition, supply/demand, self-interest
• Belief in profitable trading

Question 3

Adam Smith created

Answer 3

• Concept of GDP and compensating wage differentials
• Dangerous jobs paid more to attract workers
• Notable economics book: “Wealth of Nations”
• Against mercantilism: belief in benefits of profitable trading

Question 4

Economic man

Answer 4

Someone who pursues self-interested goals/interests, which impacts behaviour in economics

Question 5

Adam Smiths’s free market philosophy

Answer 5

• Minimizing gov. Intervention and taxation in free markets
• Gov should be responsible for education/defence sectors
  “Invisible hand” guides force of supply/demand in economy, looking out for oneself every person creates best outcome

Question 6

(Adam Smith) Wealthy nation:

Answer 6

Populated with citizens working productive to better themselves/address financial needs
- man invests wealth in enterprise most likely to help earn highest return for given risk level

Question 7

(Adam Smith) Wealth/goods production

Answer 7

• Advocated for assembly-line production made possible by division of labour
• 1 person makes pins (18 steps) makes a limited number of pins- 18 tasks completed in assembly- line production by numerous individuals=production jumps to 1000s of pins

Question 8

Smith argued=

Answer 8

Labour division and resulting specialization produces prosperity

Question 9

Smith argued

Answer 9

Countries should be evaluated on production and commerce levels to measure nation prosperity.
- free exchange should be created so both countries benefit (import/export increase)

Question 10

Adam smith called “father of economics” bcuz…

Answer 10

His theories on capitalism, free markets, and supply/demand (assembly production/labour division)

Question 11

Fundamental Smith theories

Answer 11

• invisible hand
• labour division

Question 12

Karl Marx built upon…

Answer 12

Smith’s work- smith believed capitalism was ideal state for economic growth. Marx believes capitalism led to inequality/greed among citizens=eventual collapse

Question 13

Smith’s economic laws

Answer 13

• Law of self-interest
• law of competition
• law of supply/demand

Question 14

Wealth created…

Answer 14

labour/self interest spurs people to use resources to earn money.
-Economies thrive with competition, capitalism, and a free market