Basic Econ: Day Six Adam Smith
What did Adam Smith believe? Adam Smith PowerPoint activity
Adam Smith Adam Smith, author of the Wealth of Nations is often called the “father of economics.” He advocated the “Market Economy” aka Capitalism
Adam Smith’s Beliefs: A) People, acting in their own self-interest, would work hard and produce what consumers want as if directed by an invisible hand. In the long-run people, acting in their own self-interest, would work hard and produce what consumers want.
Adam Smith’s Beliefs: B) Smith argued for (free) trade, saying it opened new markets where surplus goods could be sold and allowed for cheaper goods to be imported. Wanted to avoid taxes on foreign goods.
Adam Smith’s Beliefs: C) Smith believed that competition among businesses would keep prices in check (low).
Adam Smith’s Beliefs: D) Smith believed there was a limited but important role for government to do things such as enforce contracts, grant patents and copyrights, and provide public works such as roads. Laws were necessary to keep markets running smoothly, protect legal property and profits.
Adam Smith’s Beliefs: E) Smith observed that specialization and division of labor in a pin factory allowed workers to produce many times more pins than if each worker had been working alone. Working as a team of specialists a group can produce things cheaper then a group of individuals working for the same amount of time. (ex. Assembly-line)
What is a Market Economy? Market economies are characterized by: Private ownership of resources NOT government ownership.
competition among businesses, which tends to lower prices and raise quality prices determined in the marketplace through the interaction of supply and demand
consumer sovereignty consumers’ “dollar votes” tell businesses what to produce. Ex. If consumers don’t want it they don’t buy it, and business stop making it as there is no PROFIT in it.
limited government that acts as a referee—protecting consumers, workers, the environment, and competition in the marketplace.