Ethics and the Market: Smith

Question 1

Smith is what type of Argument

Answer 1

Utilitarian argument

Question 2

What is Smith’s view of the Market?

Answer 2

Free markets and private property will produce greater benefits for society than any amount of government regulation could produce

Question 3

What are the four points of Smiths view

Answer 3

1. People buy what they want at the lowest price they can find
2. Businesses thus want to make what people want and sell at a price consumer will pay
3. Businesses cut back on costly resources to keep prices down
4. Thus, the economy is producing what consumers want; prices are at the lowest level, and resources are efficiently used- this is good for society

Question 4

What is a key element in Smith’s view?

Answer 4

Competition

Question 5

Supply less than demand?

Answer 5

Price increase; more producers enter the market to make that product; shortage disappears; prices fall

Question 6

Supply more than demand

Answer 6

Prices fall; producers switch to making more profitable products; supply is lessened; prices increase

Question 7

What did Smith say about government’s role?

Answer 7

Do nothing

Question 8

Why should the government do nothing?

Answer 8

The market regulates itself, and the government cannot act quickly enough to deal with market fluctuations

Question 9

What happens if the demand for goods is not high enough to absorb the supply? Example is households decide not to spend as much and instead choose to save

Answer 9

1. Aggregate demand drops
2. Businesses cut back on production
3. Businesses lay off employees