ECONOMIC THINKERS

Question 1

WHAT IS THE INVISIBLE HAND?

Answer 1

CONCEPT INTRODUCED BY ADAM SMITH WHICH ARGUED THAN WHEN PEOPLE ACT IN THEIR OWN SELF INTERESTS, VIA THE OPERATION OF THE PRICE MECHANISM, OPTIMUM RESOURCE ALLOCATION IS ACHIEVED AND THEREFORE THE BEST OUTCOME FOR SOCIETY.

Question 2

WHY IS SPECIALISATION IMPORTANT TO ADAM SMITH?

Answer 2

1. CREATES PRODUCTION AND WEALTH. BREAKING DOWN PRODUCTION INTO SMALLER SPECIALISED PARTS INCREASES PRODUCTIVITY AS THE PROCESS HELPS INCORPORATE SOME AUTOMATION IMTO THE PRODUCTION PROCESS.
2. ALSO LESS TIME IS SPENT SWITCHING BETWEEN TASKS AND THE REPETITION MAKES EFFICIENCY INCREASE.

Question 3

WHAT R THE PROBLEMS OF CAPITALISM ACCORDING TO KARL MARX?

Answer 3

OBJECTIVE TO MAKE PROFIT IS ONLY ACHIEVED BY EXPLOITING WORKERS E.G WAGES LOWER THAN TRUE VALUE AND INCENTIVE FOR FIRMS TO REPLACE LABOUR WITH MACHINERY CREATING BOTH MONOTONOUS JOBS AS WELL AS UNEMPLOYMENT. HIGHER COMPETITON MAY ALSO MAKE FIRMS GO BUST LEADING TO MONOPOLIES AND MORE EXPLOITATION.

Question 4

WHAT IS CAPITALISM?

Answer 4

SYSTEMWHERE SMALL MINORITY ARE THE RULING CLASS AND THE MASSES PROVIDE THE LABOUR TO PRODUCE GOODS AND SERVICES.

Question 5

WHY DO WE NEED GOVT INTERVENTION ACCORDING TO KEYNES?

Answer 5

TO STABILISE MARKETS AND PREVENT ECONOMIC DOWNTURN. DEMAND DRIVES THE ECONOMY SO IF SPENDING STOPS, RECESSIONS CAN SPIRAL OUT OF CONTROL SO WITHOUT GOVT INTERVENTIOM, UNEMPLOYMENT CAN PERSIST INDEFINITELY AS SEEN IN THE GREAT DEPRESSION. ARGUED THAT IN A RECESSION, GOVT SHOULD SPEND MORE EVEN IF IT MEANS RUNNING A DEFICIT TO STIMULATE A POSITIVE MULTIPLIER EFFECT.

Question 6

WHY SHOULD THE GOVT NOT INTERVENE IN THE ECONOMY ACCORDING TO HAYEK?

Answer 6

SPOTANEOUS RESOURCE ALLOCATIOM VIA THE OPERATION OF MARKET FORCES WOULD BE FAR SUPERIOR TO ANY STATE PLANNING SYSTEM. BEAUSE CONSUMERS HAVE THE BEST KNOWLEDGE OF THEIR SITUATION.

Question 7

WHAT IS A FREE MARKET SYSTEM?

Answer 7

RESOURCES ARE OWNED BY INDIVIDUALS AND NOT BY THE STATE. NO INTERFERENCE FROM GOVT IN WORKINGS OF THE ECONOMY AND PRICE OF GOODS AND SERVICES ARE SET BY SUPPLY AND DEMAND.

Question 8

WHAT IS AN EXAMPLE OF A FREE MARKET SYSTEM?

Answer 8

USA

Question 9

WHAT R THE ADVANTAGES OF FREE MARKET ECONOMIES?

Answer 9

1. PROFIT MOTIVE AND COMPETITION MAY LEAD TO LOWER PRICES AND CREATION OF NEW GOODS
2. FREEDOM FOR CONSUMERS TO BUY AND WORK FOR WHO THEY WANT
3. INCENTIVE FOR LABOUR TO WORK HARD
4. INVISIBLE HAND WILL ENSURE THE RIGHT QUANTITIES OF GOODS AND SERVICES ARE PRODUCED.

Question 10

WHAT R THE DISADVANTAGES OF FREE MARKET ECONOMIES?

Answer 10

1. IMPERFECT INFO TO MAKE CHOICES OR MAY CHOOSE TO BE IRRATIONAL
2. OVER PROVISION OF NEGATIVE EXTERNALITIES
3. UNDER PROVISION OF POSITIVE EXTERNALITIES
4. POTENTIAL EXPLOITATION OF WORKERS AND CONSUMERS BY MONOPOLIES
5. INEQUALITY
6. NO PROVISION OF PUBLIC GOODS E.G STREET LIGHTS.

Question 11

WHAT IS A COMMAND ECONOMY?

Answer 11

RELIES EXCLUSIVELY ON THE STATE. GOVT DECIDES WHAT IS MADE, HOW, HOW MUCH AND HOW DISTRIBUTION TAKES PLACE. RESOURCES ARE CONTROLLED BY THE GOVT AND PRICE LEVELS R FIXED BY THE GOVT RATHER THAN THE OPERATION OF SUPPLY AND DEMAND.