Lesson 5 pg. 17 - 20 Flashcards
define the laws of economics
law of economics - general rules or principles guiding the production, distribution, and consumption of goods
List the economic laws
> satisfaction of human wants always requires effort. Everything must be worked for.
because people have more wants than they can satisfy, they must choose which of their many wants to satisfy
when certain goods are very scarce or useful, they become more valuable in relation to other goods
Every society is limited by nature in its capacity to produce goods
To produce goods, it is necessary to combine the four factors of production (explained in Ch.3)
Prosperous individuals and societies try to produce goods (work) as efficiently as possible
to acquire capital, or tools of production, individuals and societies must save, postponing consumption of other goods
an increase in capital efficiency results in increased production
division of labor and specialization usually result in increased production
economies that practice effective division of labor require some form of money to make exchange of goods easier
Describe mercantilism
> from early in the 16th century until the close of the 18th century, the prinicipal states of Europe followed the set of economic policies called mercantilism
aim of mercantilism: to build up the state’s treasury
thought of mercantilism: government backed by great national wealth could maintain large, well-equipped armies and fleets, making it a major power in the affairs of nations and that a nation’s wealth lay in its stockpiles of precious metals
belief of mercantilism: that the economic goal of any nation should be to accumulate as much bullion (gold and silver) as possible
main concerns of mercantilism: trade balance - difference in value of the goods that a country sells abroad compared to those it purchases from other countries
mercantilists discouraged foreign competition by enforcing import restrictions and high tariffs–taxes that governments apply only to imported goods
mercantilists advocated imperialism–establishment of colonies and extensive territories created to benefit their mother countries
mercantilists supported elaborate state regulation of their economies
Describe “the Economists”
> around middle of 18th century, some merchants, financiers, and scholars in France began to voice severe criticisms of mercantile system
these men argued that mercantile system of European states was based upon false priniciples
these critics, who at first called themselves simply “the Economists” were the first group to try to create a science of the production, distribution, and consumption of goods
Describe the physiocrats
> young member of “the Economists”, Pierre Samuel du Pont de Nemours, published in 1768 book entitle “Physiocracy”, a name which means “the rule of nature”
soon French economists began to call themselves the “physiocrats”
they meant by their title that they favoured a “natural” economy, as opposed to the “unnatural” or “artificial” economy created by mercantilism
physiocrats were some of the earliest influential advocates of “laissez-faire” economics, French phrase meaning “let things alone”
Describe “laissez-faire”
> physiocrats were some of the earliest influential advocates of “laissez-faire” economics, a French phrase meaning “let things alone”
in contrast to mercantilism, laissez-faire doctrine says that a nation’s economy is best left to itself and should not be stifled by governmental regulation
each individual ought to decide what is best for himself because what is best for the individual is best for society
physiocrats advocated unrestricted trade within a country, abolition of special privileges granted to industries by government, and international trade not hampered by heavy taxes
free economic competition lowers prices and prevents excessive profits
physiocrats believed that society’s real wealth comes from land through agriculture and mining
Describe classical economics
> out of physiocrats ideas came the beginning of classical economics, theories developed by economists of 19th century and early 20th centuries that stated that the free market was best possible economic system
Describe who Adam Smith was
> within the lifetime of the leading physiocrats, there appeared an economist who was even greater. He was Adam Smith, the founder of modern economics.
List the books list of main differences between mercantilists and physiocrats
> mercantilists: “a nation’s real wealth is determined by its store of precious metals (gold and silver)”
physiocrats: “a nation’s real wealth is derived from the land and its natural resources”
mercantilists: “the importation of foreign goods should be limited through restrictions and high tariffs”
physiocrats: “free trade should be encouraged among nations through the absence of excessive laws and taxes”
mercantilists: “government is needed to control population patterns by dictating where people may live and where they may work in order to ensure productivity”
physiocrats: “government should allow people to make their own choices because free labor is more productive than controlled labor”
mercantilists: “industries need governmental regulation, special privileges, and protection in order to ensure their survival”
physiocrats: “industries flourish best when allowed to make their own choices, free of governmental intervention”
