ECO 3303 midterm

17. (10 points) What is the first subject Adam Smith discusses in The Wealth of Nations? Why is this important?

- First subject: a nation's wealth is dependant on the division of labor -Significant because it is the first sentence and the thesis for all of his work, and it answers the question of how is wealth created in an economy

30. (15 points) Discuss the ideas of the Spanish economists around the time of Adam Smith. What types of ideas did they espouse? Why were there ideas not as prominently known as Smiths? Why did their ideas have less influence than smiths?

- The spanish economists around the time of Smith encouraged a Laissez-fare economy -Because of the controlling gov in spain, they were anonymous persona who feared speaking out against the gov, compared to politically free Britain. -This is why they're ideas were not as known.

(10 points) Ludwig Von Mises argued that "Economics is the youngest of the sciences." What was his argument? Does this argument appear true, or is it just an exaggerated claim of an economist?

-Before capitalism, the economy remained constant. As it began to develop, intellectuals began observing and developing their own theories. -Because economics was the last of the sciences to develop, it can be considered the "youngest" -Yes, these claims tend to be true because of the visible progress of society today.

(15 points) Explain the specie flow mechanism that David Hume described. What are the implications of the specie flow mechanism for the policies advocated by the mercantilists?

-Favorable balance of trade = increase in quantity of gold and silver (specie) -Increase in money = increase price levels -If one country is having a favorable balance of trade, another country must be having an unfavorable balance = loss in gold/silver = fall in prices -For the favorable economy, exports decrease, imports increase (opposite will happen for the unfavorable economy) -This will lead to a self correction of trade balances -These implications supported the mercantilist view that a gain of a nation results in the loss of another. Also, a gradual increase in the $ supply = increased output, which is also a view of the mercantilists.

53. (10 points) What was Hermann Heinrich Gossen best known for? What impact did his ideas have on the development of economics?

-Gossen created a mathematical representation of marginal utility. -His idea didn't enter mainstream economics til the 1870s. He was ahead of his time.

How does Adam Smith argue that college teachers should be compensated? Briefly explain the logic behind this argument

-He believed that college student should be compensated by their students. --When smith observed the college of education of england, he saw insufficient intellectual activity and low-quality instruction. -He linked this to the income of professors being independent of the students they attracted

2. (10 points) What was the main arguement underlying Adam Smiths Theory of Moral Sentiment?

-He focused on the concept of "impartial spectator", which means you don't harm others/deprive them of their civil rights. -He then argued that something can be settled by an individual who has no opinion on the subject.

(10 points) Mandeville argued that mortality and economics are different areas of inquiry, but how did he link together morality and prosperity?

-He linked together morality and prosperity by condemning idleness. -He wanted the government to push for more of a social good through rules and regulations.

(10 points) What were the main contributions of Sir William Petty?

-He was the first person to advocate the measurement of economic variables using statistical techniques. -His insight on combining statistics with economics is what we know today as econometrics. -National income accounting

(10 points) Discuss the main contributions to economics of David Hume

-His contributions have become known as the price specie-flow mechanism (equalizes prices among countries) -and the quantity theory of money.

41. (15 points) Explain David Hume's contributions to monetary theory and international finance. In the course of your discussion, describe the effects Hume would have expected from an increase in the quantity of money in a country. Explain the effects both in the country with an increased quantity of money and in other countries.

-Hume believed that a gradual increase in the MS would lead to an increase in output. --An increased quantity of money in one country would lead to a decrease of MS in another. (prices specie flow mechanism)

6a. (10 points) What were the main contributions to economics of Richard Centellion?

-It is said that being named "father of modern economics" belongs to Centellion, not Adam Smith. --His book, the "Nature of Trade in General", emphasized points on political economy that made people think of economics as a science.

9. (10 points) Discuss the main contributions of john Stuart Mill to economics. Which economist had the greatest influence on his work? How influential was Mill, both in his own day and on those economists who followed him?

-Main contribution: his book "The Principles of Political Economy" -Just restatement of Ricardo just further developed --influences: Bentham, Smith, Ricardo -His book was the standard book after it was written and for many years after, had to have influenced economists that were after him

(20 points) Some have criticized economic models for being overly simplified and unrealistic. Discuss the role of simplifying assumptions in economic models and consider both the advantages and disadvantages of simplifying and unrealistic assumptions.

-Models help simplify what's going on in the real world, and they assume a lot of things and convey many key ideas. -These models help economists see the big picture, which enhances the conclusion. -However, only focusing on the big picture makes analyzing specific economic problems difficult.

56. (20 points) Discuss the influence Sir William Petty had on the key ideas of Adam Smith and Malthus. Were Smith and Malthus in agreement with Petty, or did they argue against him?

-Petty tried to measure population, national income, exports, imports, and the capital stock of a nation. -Petty created a model for population growth that influenced Malthus -However, his ideas were crude Smith argued that petty had little use for political arithmetic.

49. (15 points) What is Say's law? Discuss the viewpoints on Say's Law by David Ricardo and Malthus. Did they agree or disagree? What were the arguments of each?

-Say's Law states that supply creates its own demand -The argument was about the ability of a capitalist system to maintain full employment of its resources, and Malthus did not agree but Ricardo did. -Ricardo argued that a capitalist system will provide full employment of its resources and high rates of economic growth.

44. (20 points) Adam Smith and David Ricardo had significantly different views on the future of prosperity in a market-driven economy. Explain the views of both economists. Which view do you think is more correct? Which view do you think is more closely related to contemporary economic theory?

-Smith believed in the division of labor and prosperity only being limited to the extent of the market. -Ricardo, on the other hand, believed society would eventually be stuck at a subsistence level (or the minimum level needed to survive) -I believe in Smith because he believed wealth expand with markets, and historically, we keep getting wealthier while markets continue to expand.

(15 points) Why did the industrial revolution begin in Britain? Contrast conditions in Britain with other nations (such as France, China, Germany) to explain why Britain had such a favorable environment for industrialization.

-The Industrial Revolution began in britain because it was a lot more decentralized than other governments in Europe, which made it more competitive with less barriers to trade. -Because of this, it was profitable to be innovative, so people came up with new ideas, which started the industrial revolution.

(10 points) Explain how the concept of equilibrium became the central idea in the 20th century. What ideas does economics repulse by taking an equilibrium approach to analyzing economic activity?

-The concept of equilibrium became the central idea in the 20th century because after Marshall answered the question of value, which was the intersection of supply and demand at the equilibrium, the focus then turned to the idea of creating equilibrium in a chaotic market, which is where the question of the properties of economic equilibrium came about. -However, focusing so closely on the margins instead of looking at the "big picture" makes analyzing specific economic activity difficult.

(15 points) Explain the key idea in Malthus's Essay on Population. Discuss the way in which this idea related to Adam Smith's views on the future direction of economic progress and prosperity.

-The key idea in his essay was that population tends to grow faster than food supply. -This is related to Smith's views on the future direction of economic progress and prosperity because smith thought that the only thing that the division of labor for is increasing the wealth of nations, however it is limited by the extent of the market.

42a. (10 points) What is the main factor Adam Smith said was responsible for increasing the wealth of nations? What factor did he say limited the wealth-creating ability of the economy?

-The main factor is the division of labor -The factor that limited the wealth-creating ability of the economy is the extent of the market of that economy.

28. (20 points) Compare and contrast the views of the mercantilists and the physiocrats on the subject of policies that can make nations more prosperous. Discuss their views on the role of natural resources on wealth creation, and on the public policies they recommended to enhance a nations wealth.

-The mercantilists believed the accumulation of gold and silver determined a nation's wealth, while the physiocrats focused on a nation's land and the resources created from agriculture. --Mercantilists believed goods should be assorted at home and if anything were to be imported it would be raw materials. ---Physiocrats believed the creation of physical value concluded that the origin of wealth was in agriculture, or nature.

(15 points) Discuss the views of the mercantilists related to raw materials. How did raw materials, both produced domestically and abroad, fit into their system?

-The mercantilists encouraged the importation of cheap raw materials. -This fit into their system because importing cheap raw materials could be used to manufacture goods for export, which is a favorable trade balance.

21. (15 points) Ricardo identified three economic factors of production as land, labor, and capital. What determines the payments made to each factor? As an economy progresses, describe how Ricardo expected that payment to each of these factors would change.

-The payment made to land is rent, which is determined by how profitable the land is -The payment made to labor is wage, if subsistence wage dropped then population would decrease, and if it rose the rising population would even out with it -The payment made to capital is profit, which is determined by the cost of production

5. (15 points) Who were the physiocrats? What were their main ideas, and how do the policy ideas of the physiocrats compare to those of the mercantilists?

-The physiocrats were a group of french writers -Believed that it wasnt how much gold or silver you have, it's about how much land you have and the ability to create agriculture. --Also believed in natural laws, net products, and the circulation of wealth

(15 points) How has the theory of value evolved over the past three centuries? Consider the ideas of mercantilists, physiocrats, Adam Smith, Ricardo, Marx, and Marshall in developing your answer.

-The theory of value has evolved substantially over time. -The Mercantilists believed value was accumulated through gold and silver. -The physiocrats believed value was determined through land and the resources that could be created through agriculture. -Smith argued that value was created through the division of labor which increased capital and the extent of the market. -Ricardo, however, saw a good only being valued as the effort of labor that was put into in the good. -Marx agreed with Ricardo but created his own ideas through the surplus theory of value. -Marshall argued that the value of a good is determined by both supply and demand

10. (10 points) What were the main contributions of Jeremy Bentham to economics? How did Bentham's work influence the development of economic ideas?

-maximizing utility -Wanted to design laws that would lead to the greatest good for the greatest number. -Also big on social reform and one of the first people to talk about birth control

(30 points) Over the past three centuries, economics has been preoccupied by a different main issue in each century. Briefly review the issues that dominated each century, explain how the issues arose, and why the procession moved on to new issues.

18th century: how is wealth created? --Arose from the birth of economics. Capitalist markets were being discovered for the factors of production during the time. ---Were a result of human action ----Markets like the Dutch-East India company steamrolled economic progression and development. Transition: Wanted to expand upon the question they were answering, and now asking how wealth is determined. 19th century: What determines value? --Arose from asking how to get rich. What it means to be rich, and how do you measure it. --Transition: Alfred Marshall said the value is determined by both supply and demand. Next, they wanted to find a happy medium for a market, where everyone can be happy. 20th century: What are the properties of economic equilibrium? --Development of the supply and demand framework began during this time along with the equilibrium model. ---Moving into the 21st century, the next question is how to maintain economic growth.

37. (10 points) Who were the scholastics? When did they write, who were the most important scholastic writers, and what were the main ideas they developed?

A group of monks from the 12th century Most notable was st thomas aquinas who addressed issues regarding the institution of private property and the concepts of price and usery.

(10 points) What economist did James M. Buchanan, Nobel laureate and FSU faculty member during the 1950s, cite as having the biggest influence on his ideas? What were his contributions to economics that the Nobel committee cited in awarding him the Nobel prize?

He was influenced by knut wicksell His contributions was that he shaped a generation of conservative thinkers about deficits, taxes and the size of government.

(10 points) Knut Wicksell is known for many contributions to economic analysis, including his theory on just taxation. Which economist is best-known for expanding on Wicksell's ideas on taxation? Discuss the way that those ideas have been developed into the twenty-first century

His ideas were expanded by the Austrian school of thought (Bawerk). His elements on public policy greatly influenced the swedish economy. He is also praised of using interest rate to promote price stability.

(10 points) The mercantilists advocated protectionist policies that most economists today would argue reduce a nation's prosperity. Why would they have argued for such policies?

The argued for these policies because the mercantilists believed wealth is determined by how much accumulation of gold and silver a nation has, so trading it is getting rid of the wealth. They were businessmen who wanted protection from foreign competition

What is the idea behind the "single tax?" Whose idea was it? What is the basis of the idea? What influence did it have?

The idea behind single tax is a system proposed by henry george in where he believes public property should be taxed. He stated that is if land were to be taxed, activities using the land would cease. This remains a favored policy amount environmentalists.

(25 points) What were the key policy ideas of the mercantilists? Explain the logic of their ideas and discuss whether their policies were oriented toward creating wealth and prosperity. What was it that motivated the mercantilists to support their ideas?

The key policy ideas of the mercantilist included the: -accumulation of gold and silver determined the wealth of a nation (which is fixed) -Exports over imports (except raw materials) -Low wages Because they were all businessmen, what motivated them was the idea that keeping all of their wealth stockpiled in their nation would help them build wealth personally.

(15 points) Describe the policies the mercantilists advocated and discuss how those policies would affect a nations economy. Why would they have argued for such policies?

The policies mercantilists advocated were -The accumulation of gold and silver determined wealth -Wealth is fixed -Exports over imports -They advocated for these policies because they wanted to determine the best way to promote power and wealth of a nation.