Unit 3 Flashcards
BEFORE 1776
- Mercantilism
- Gold and silver
- More on export than import
- The colonial models
- The birth of classical economics
- Wealth of the Nations – 1776
ADAM SMITH
Smith introduced that if a person followed their own _______, they would be serving the common good.
self-interests
“The _________ is not based on accumulation of gold and silver but on the value of good and services”
wealth of the nations
To increase the wealth one of the key is worker productivity (Division of labor and Specialization of Labor)
TRANSFORMATIONAL THOUGHT
cost of production
Labor theory value
o Consumer maximize utility
o Producers maximize their profits
Invisible hand
It means happiness
utility
______ is key to the prosperity of nations
Free trade
British economist, __________ expanded on Smith’s idea by introducing the theory of comparative advantage
David Ricardo
“When both countries concentrate on producing what they are best at and then trade, everyone benefits.”
theory of comparative advantage
Comparative advantage, both countries have opportunity costs. But the country who has a __________ has the comparative advantage.
lower opportunity cost
the foundation of modern
international trade
theory of comparative advantage
When almost all scholar are peaching ideas like private property and free-trade and free-market, along comes the __________ in 1848.
Communist Manifesto
Communist Manifesto was created by?
KARL MARX AND FRIEDRICH ENGELS
“Rather than investigating individual behavior observed economic classes and argued that history can be explained by the struggle between workers and property owners”.
Communist Manifesto
KARL MARX AND FRIEDRICH ENGELS
In spite of Marx’s criticisms, ________ theory dominated economic thinking until the end of 19th century, with influences from American, British, and French economists.
market-based
Broke from classical economist because the economy shifted focus from supply and demand side of the economy.
NEOCLASSICAL ECONOMICS
In neoclassical economics, the _______ of the product is not the main issue
value
NEOCLASSICAL ECONOMICS
“rather than the value of good being derived from the cost of value is derived from the _____ of consumer of the product”
utility
Measuring the utility in economics
the law of diminishing marginal utility
Mathematics began to emerge in economics
NEOCLASSICAL ECONOMICS
Wrote the “Principle of economics” 1890
ALFRED MARSHALL
Advent of the supply and demand diagram and the beginning of models to explain human behavior.
ALFRED MARSHALL
- The beginning of model building
- Based on assumptions about rational economics behavior
- Consumer and producer seen as optimizers
- The movement towards “science”
NEOCLASSICAL ECONOMICS
British economist who proposed A General Theory of Money Interest and Employment, published in 1936.
John Maynard Keynes
John Maynard Keynes founded what?
macroeconomics
“Keynes argued that market economies do not correct itself fast enough because prices and wages take time to adapt. They proposed that during _______, the government must be involved and intervened through monetary and fiscal policies. This is to increase production and decrease unemployment, even this if it means going into debt”
economic busts
With the ill-effects of the Great Depression lingering, many countries have pushed for an ideology called _______, despite it being thrown around since the middle of 19th century.
socialism
These countries provide generously for their citizens through universal healthcare and social safety nets, they do so through heavy taxation, operating in a capitalist framework.
socialist economies
As socialism and Keynesian economics drove some economies, other economists persisted to push for private
property and free market.
The most outspoken group was the ___________
Austrian School of Economics.
The Austrians, _______ and ____________, argued that heavy reliance on state intervention has never produced the results it sought to accomplish, and that government interference and strict regulations create more problems than solutions.
Friedrich Hayek and Ludwig von Mises
They rejected nearly every idea of monetary and fiscal policy and for the Austrian School, the economy is too complex to warrant _________
government manipulation.
But since the government intervenes in the economy, _____ and _____ occur
booms and busts
As with Hayek and Von Mises, _________ promoted the privatization of many roles that the government has assumed and taken control.
He was notable in proposing the deregulation of the economy.
MILTON FRIEDMAN
Friedman established that the failure of the response to the Great Depression was because of ________________
Keynesian economics.
In the 1970’s, Friedman ideas became more widespread when the US experienced very high inflation rate and low production, a __________
stagflation.
Stagflation became the very thing that the __________ claimed to have debunked Keynesian economics.
Chicago School of Economics
Friedman also built another idea from economic theory. It is called _________
It is focused on the stability of prices and recommended the slow and controlled increase of money supply to permit for consistent economic growth
monetarism.
Today, modern economic theory stands on the shoulders of classical economics, Friedman’s monetarism and Keynesian economics. This integrated theory is often called the _________
NEW NEOCLASSICAL SYNTHESIS
people who earn a wage for a living, especially people who are dependent on manual, daily, or casual labor.
Proletariats
those who make their living through property or through ownership of the means of production
Bourgeois
