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History of Economic Thought IBEB > History of Economic Thought Lecture 2 > Flashcards

History of Economic Thought Lecture 2 Flashcards

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1
Q

Who came up with Relative Price Theory?

A

David Ricardo

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2
Q

What determines prices according to David Ricardo’s Relative Price Theory?

A
  1. More inputs in production than just labour

2. Production process of unequal length of time

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3
Q

What kind of implications David Ricardo meets in his relative Price Theory?

A
  1. Deviation in relative price not more than 6-7%

2. Level of wages is not irrelevant for relative prices

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4
Q

Who came up with Theory of Rent and elaborated on this topic after Adam Smith?

A

David Ricardo

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5
Q

According to David Ricardo should rent be a part of the price formation?

A

NO

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6
Q

What is the main difference in David Ricardo’s and Adam Smith’s Theory of International Trade?

A

Adam Smith - trade based on absolute cost advantage

David Ricardo - each country specializes in production and exports part of it (comparative advantage)

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7
Q

David Ricardo was ___ Corn Laws

A

Against

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8
Q

Why there is tension between David Ricardo’s Labor Theory of Value and Theory of Comparative Advantage?

A

There is no mention of how gains from trade are split

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9
Q

David Ricardo’s Theory of Market Gluts:

A

Temporary glut can occur;
Supply creates its own demand by recourse allocation between production process of various commodities and capitalists’ savings imply investment expenditures which create demand for good

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10
Q

What is David Ricardo’s view on Economic Policy?

A
  1. Abolish Corn Laws
  2. Population growth should not come at cost of economic growth
  3. International trade and its associated gains should not be restricted
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11
Q

Who was the last economist of Classical School and in transition to Neo-classical one?

A

John Stuart Mill

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12
Q

Adam Smith’s and David Ricardo’s Theory of Price was driven by

A

Supply side of the Economy (price determined by production costs)

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13
Q

Who introduced the demand side of the economy to the Theory of Value aka Price Theory?

A

John Stuart Mill

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14
Q

3 major inovations of John Stuart Mill to the Theory of Value:

A
  1. prices adjust to the level where the value of exports equals the value of imports
  2. prices adjust to the level where supply = demand
  3. general equilibrium concept: aggregate demand = aggregate supply
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15
Q

According to John Stuart Mill, what is a fundamental principle of price formation?

A

Is tendency of market mechanism to equate supply and demand

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16
Q

John Stuart Mill’s opinion on the Theory of Wage funds:

A

He rejected the theory as trade unions are unable to influence wages (actually there is evidence that they could)

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17
Q

To whom belongs the Theory of History?

A

Karl Marx

18
Q

What are the forces of production in Karl Marx’s Theory of History?

A

Technology, types of capital, skill level of labour

19
Q

What are the relations of production in Karl Marx’s Theory of History?

A

Rules, social relations, property relations

20
Q

What are the superstructure reinforces o in Karl Marx’s Theory of History?

A

Art, philosophy, religion, literature, etc

21
Q

Karl Marx’s Labor Theory of Value:

A

Absolute labor time determines value and capital and landowners do not any value (only one productive factor, similar to physiocrats’ nature for agriculture)

22
Q

Karl Marx did not agree with Adam Smith on

A

Invisible hand, as capitalists profits are used to accumulate profit (wages were little -> able to make profit from the production)

23
Q

What are the 4 main principles of Karl Marx?

A
  1. Reject classical harmony of interest
  2. Oppose to laisser-faire
  3. Reject Say’s Law
  4. Protect collective action and public ownership of enterprise
24
Q

Who was the first to note the phenomenon of business cycles?

A

Karl Marx

25
Q

What did Karl Marx accurately predict?

A

Growth of large-scale enterprises and monopoly power

26
Q

What are 6 characteristics of Marginal School?

A
  1. Stronger emphasis on behaviour of individual agent
  2. Increased focus on demand
  3. Mathematics in economics
  4. Rational behaviour
  5. Equilibrium approach
  6. Limited role for government
27
Q

`Who were 3 forerunners of Marginalists School?

A
  1. Antoine Augustin Cournot
  2. Jules Dupuit
  3. Johann von Thünen
28
Q

Who first applied mathematics to economic analysis?

A

Antoine Augustin Cournot

29
Q

What major theories did Antoine Augustin Cournot came up with?

A

Theory of price formation in the market with one or few suppliers -> Theory of Monopoly and Theory of Duopoly

30
Q

What is the main idea of Jules Depuit?

A

Marginal Utility Curve: additional utility from unit of good depends on the amount of the good you already have

31
Q

What is Johann van Thünen’s main idea?

A

Theory of Location:

  1. positive and diminishing marginal productivity of labour
  2. use labour up MP=MC (optimality)
  3. transportation costs
32
Q

Who were Marginalists?

A
  1. William Stanley Jevons
  2. Carl Menger
  3. Leon Walras
33
Q

Who was the first “real” economist we have discussed?

A

William Stanley Jevons

34
Q

Who came up with Theory of Utility?

A

William Stanley Jevons

35
Q

William Stanley Jevon’s Theory of Utility:

A
  1. marginal VS total utility
  2. rational choice -> equimarginal rule MU=MC (in international trade & decision to work as well)
  3. Law of decreasing marginal utility
  4. Prices are determined by marginal utility, as the total vs marginal utility solves water-dimond paradox
  5. No general equilibrium model
36
Q

What is Carl Menger’s Theory of Value?

A

It is based on utility concepts, BUT prices are based on total utility, price of production factors imputed from consumer goods

37
Q

Who came up with Mathematical General Equilibrium Model?

A

Leon Walras

38
Q

According to Leon Walras how were relative prices determined?

A

1 numeraire & m-1 relative prices;
Optimization of utility: marginal utility divided by the price must be the same for all goods, hence, prices are determined first

39
Q

Leon Walras’ General Equilibrium:

A
  1. Consumers max utility, producers max profits
  2. Consumer’s demand = firm’s supply
  3. firm’s demand = consumer’s supply for all factors of production
40
Q

What did marginalists bring?

A

New approach to economic theory due to focus on demand, marginal utility theory, mathematical methods

41
Q

What contributions of Marginalists can be found in modern economics?

A 
Monopoly model 
Duopoly model
Theory of diminishing marginal returns
Theory of rational consumer choice
Law of demand
Law of diminishing marginal return
Returns to scale concept
42
Q

How Leon Walras extended his model of Mathematical General Equilibrium?

A

He added conditions for cost minimization (free competition brings production costs to minimum)

History of Economic Thought IBEB (3 decks)

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