Adam Smith and The Market Economy

competition among businesses

tends to lower prices and raise quality

wealth of nations

British philosopher and writer Adam Smith's 1776 book that described his theory on free trade, otherwise known as laissez-faire economics.

market economy

Economic decisions are made by individuals or the open market.

profit motive

an incentive for businesses to produce what consumers demand and to produce those goods and services efficiently - keeping costs down - in hope of earning greater profit

Adam Smith

author of The Wealth of Nations, is often called the "father of economics."

limited government

that acts as a referee protecting: consumers, workers, yhe environment, and competition in the marketplace

invisible hand

that people, acting in their own self-interest, would work hard and produce what consumers want as if directed by a ___________

division of labor

the breaking down of a job into separate, smaller tasks to be performed individually. leads to better quality, quantity and speed

consumer sovereignty

the concept that consumers' "dollar votes" tell businesses what to produce

private ownership of resources

the right to exclusive use, legal protection against invaders and the right to transfer property to others

prices are determined in markets

through the interaction of supply and demand

specialization

when people focus on producing a few things instead of making everything they want by themselves. leads to better quality, quantity and speed