Chapter 4 - A Conflict of Intersests Flashcards
Mercantilism
Economic theory - strengthen national power by regulating the economy emphasizing the stockpiling of gold and silver to the economic power of the nation; regulated economy by encouraging exports and restricting imports. If exports were greater than imports, other countries had to pay gold/silver to settle accounts.
The Navigation Acts
Parliament passed this in order to enforce trade regulations on the colonies; all trade had to go through British or colonial merchants and be shipped in British or colonial ships with the end goal to generate large exports from England with few imports so that gold and silver would flow in. Reminded colonists that they were subservient to Britain
Capitalism
The philosophy of a free market economy in which the gov serves only to create an acceptable environment jon which to make exchanges
The Wealth of Nations
Written by Adam Smith to criticize mercantilism and propose a free market economy where the invisible hand determines prices
Markets
Division of the economy that specializes in certain goods or services
Market economy
Economic model by Adam Smith - the forces of individual self interest regulates the economy: self regulation eliminated the need for most government interventions (based on supply and demand)
Exchange
Trade between two parties
Role of money
Money facilitates exchange by eliminating the necessity for a “coincidence of wants” functioning as a generally acceptable medium for exchange
Coincidence of wants
When two parties each possess something desired by the other promoting an exchange
Specialization
The economic practice of focusing resources on production of one or a few goods to increase productivity
Perfect competition
When buyers and sellers have no influence on price and terms of exchange (the market is competitive (a market where goods are bought and sold widely) if there are sufficient buyers and sellers that no single buyer or seller has much influence on price)
Comparative advantage
Because of varying opportunity costs between producers it is more beneficial for producers to specialize and exchange than to try to produce everything individually
The role of government in a market economy
- Prevent coercion and fraud
- Provide money
- Provide basic transportation and communication
- Define property rights
- Enforce exchange agreements
Collusion
Smith’s fear that there may be in some unusual situation only one buyer or seller; sellers conspire to maintain a high price avoiding competition
Monopoly
When a person/group gets enough market power to control or manipulate prices; the lack of market competition
