Why 1. Why do you think Dr. X is trying to find a cure for AIDS. 2 Why 1. Why do you think Dr. X is trying to find a cure for AIDS? 2. Why do you think athletes want to win the league MVP? 3. Why do airplane pilots want to always land safely?

Adam Smith Smith argued the world would be an orderly, better place, with increased prosperity if people followed their own self interests.

“It is not from the benevolence of the butcher, or the baker, that we expect our dinner, but from their self-love”

Smith thought social harmony would result without any government direction “as if by an invisible hand.”

He defended the idea of a free economy in his book The Wealth of Nations.

Another way to say a free economy is laissez faire: The idea that government should not interfere with or regulate industries and businesses.

http://www.youtube.com/watch?v=ulyVXa-u4wE Great invisible hand cartoon

The opposite is government intervention Examples Sales tax Minimum wage Maximum work hours Safe Working conditions Sick and vacation pay Disability pay Product safety

1. Tariffs - high taxes on imported goods Examples of government intervention with regards to international trade (trade barriers): 1. Tariffs - high taxes on imported goods 2. Quotas: limit the quantity of imported goods 3. Tough government regulations

Smith thought the only legitimate functions of the state were: National defense Establish property rights Establish legal system Promote free trade Invest in trade-promoting infrastructure

Adam Smith is considered the father of Capitalism

Capitalism: An economic system based on private ownership and on the investment of money in business ventures in order to make a profit. Also known as the free-enterprise system or market economy

The aims of a market economy are to produce the best goods at the lowest price

Capitalist often oppose government efforts to help poor workers because it lowers profits.

Capitalism’s five main features are: 1 Capitalism’s five main features are: 1. Private property: resources and capital are owned by people and private institutions, not the government

2. Self-interest: each economic unit (person or business) attempts to do what is best for itself

3. Competition: a large number of independent buyers and sellers is best Dunk Video

4. Reliance on price (economists call this the market): if prices go up, the producer makes more and if the prices go down, the consumer buys more (the Law of Supply and Demand)

5. Limited government (laissez faire economics): pure capitalism is seen as self-regulating; only broad legal limits should be established by the government

Free trade dvd http://www.youtube.com/watch?v=EBifN69gcKY Boring http://www.youtube.com/watch?v=oLbfAfCVG_4&feature=relmfu cartoon