(L2) Sandmo Chapter 2 & 3 Flashcards
What is Mercantilism?
Mercantilism is an economic policy from 17th-18th century Europe, focusing on increasing a ruler’s wealth through trade surpluses and precious metals accumulation.
Who was François Quesnay and what was his major work?
François Quesnay, physician to King Louis XV, developed the ‘Tableau Economique’, depicting goods and income flow in an economy, and was a major figure in the Physiocrats school.
What is the significance of Adam Smith’s travel and interactions with French physiocrats?
Smith’s interactions with the Physiocrats influenced his seminal work ‘The Wealth of Nations’, begun in France and completed in Scotland.
What is the main focus of Adam Smith’s ‘Wealth of Nations’?
‘The Wealth of Nations’ delves into economic theory, social institutions, and historical context, discussing microeconomics, price theory, capital accumulation, and public sector economics.
What is Adam Smith’s price theory?
Smith’s price theory suggests prices are determined by labor required to produce goods, and distinguishes between value in use and value in exchange.
How does Smith differentiate between market and natural prices?
Smith distinguished between market price (fluctuating with supply and demand) and natural price (influenced by wages, profits, and rent).
What is Smith’s view on competition and free markets?
Smith argued for free markets, emphasizing that competition and division of labor lead to efficient production and lower prices.
How are the returns to the factors of production determined according to Smith?
Long-run prices of commodities align with long-run returns to labor, capital, and land, determined by various factors like bargaining power and national wealth.
What factors influence wages, according to Adam Smith?
Wages are influenced by employment contracts, bargaining power, and economic conditions. Smith suggested they must support a worker’s family.
What is Smith’s theory of rent?
Rent is charged by landowners based on the difference between tenant’s income and normal costs, distinct from wages and profits.
What is the concept of the ‘invisible hand’ in Adam Smith’s theory?
The ‘invisible hand’ suggests individuals’ self-interest inadvertently benefits society, leading to a natural harmony between individual and societal interests.
How does Adam Smith view investment and self-interest?
Smith argued individual self-interest guides domestic investment decisions, beneficial for national security and economic foundation.
What is Smith’s stance on monopoly and natural price?
Smith criticizes monopoly pricing, contrasting it with competitive market pricing, regulated by supply and demand forces.
How does Adam Smith view the public interest?
Smith believed self-interest could lead to societal benefits but acknowledged potential conflicts between individual actions and public interest.
What was Adam Smith’s perspective on international trade?
Smith argued for liberalizing international trade, against mercantilist policies, and supported domestic production of strategic goods.
