Economic Systems: Adam Smith and the US Economy

(Essay) Explain Adam Smith's ideas about what the government's role should be.

Adam Smith believed that the government's responsibility should be to ensure a society where business can prosper. He felt that government attention should be focused on the following: ensuring a peaceful and stable nation, protecting citizens rights to use private resources to make a profit, guaranteeing an honest judicial system, granting patents and copyrights, and providing public works to benefit all of society.

(Essay) Describe how Adam Smith's ideas are seen in the United States economy.

Adam Smith's ideas can be seen in many aspects of the United States economy, such as the presence of a wide variety of specialized jobs. There is also a high level of economic freedom which allows consumers and producers to pursue self-interest and create a competitive marketplace.

____ have the economic freedom to save, spend, and invest money as they see fit.

Consumers

(Essay) Define the term laissez-faire. What is the role of the government in a laissez-faire economy?

Laissez-faire means let them act. In a laissez-faire economy, the role of the government is minimal. Rather, the economy is guided by the invisible hand, the forces of self-interest and competition working together to provide what consumers want at reasonable prices.

(Essay) Explain how self-interest and competition work together to regulate prices.

Self-interest occurs when consumers seeks to buy certain goods or services at the best possible price. Producers, in an effort to make a profit, act on what consumers want. As more producers are drawn into the market competitors will offer lower prices in order to attract more business.

Adam Smith wrote his economic theories in a book titled __________. The Future of Capitalism The Wealth of Nations The History of Market Economics The Wealth of the New World

The Wealth of Nations

(Essay) Describe the four elements that markets need for success.

The four elements that markets need for success are specialization, self-interest, competition, and economic freedom. Specialization is focusing on doing one thing well. Self-interest is what one needs and wants. Competition is the result of more than one producer trying to attract consumers. Economic freedom allows citizens to act in their self-interest with little government intervention.

(Essay) Explain how the invisible hand regulates the economy.

The invisible hand regulates the economy by allowing producers to supply what consumers want. As consumer demands increase so does the number of competitors providing similar goods and services. The increased competition results in prices staying at a reasonable level so that government action is not required in maintaining a stable economy

A competitor will often lower prices in an effort to __________. increase trade attract business create monopolies decrease production

attract business

A laissez-faire government approach to the economy is based on the ideas of __________. socialism communism traditionalism capitalism

capitalism

A __________ is an agreement between two or more people or parties. contract security dialogue monopoly

contract

Citizens are allowed to act in their own self-interest when given __________. job security political stability economic freedom government restrictions

economic freedom

Each of the following is required for Adam Smith's concept of an invisible hand guiding the marketplace EXCEPT: consumers producers government competition

government

The United States economy has been influenced by Adam Smith in its creation of all of the following EXCEPT: variety of specialized jobs competitive marketplace high level of economic freedom government-provided safety nets

government-provided safety nets

In a market economy, specialization enables the creation of: highly competitive markets. low-cost goods and services. limited options for consumers. high-quality goods and services.

high-quality goods and services.

Economic freedom promotes __________ and __________. production . . . consumption motivation . . . confidence innovation . . . competition specialization . . . construction

innovation . . . competition

When consumers seek to buy goods at the best possible price they are exercising self-__________. interest control confidence promotion

interest

Copyrights and patents encourage __________. trade imports inventions investments

inventions

Self-interest motivates producers to offer __________ products. less expensive more expensive consumer demanded environmentally safe

less expensive

The term laissez-faire literally means __________. leave them alone let them act give them choices give them freedom

let them act

In a laissez-faire economy, government involvement is __________. encouraged limited necessary nonexistent

limited

Which type of economic system did Adam Smith believe could provide for society's needs? mixed market command traditional

market

Adam Smith is regarded as the father of __________. Marxism modern economics mixed market economics the socialist movement

modern economics

To generate business in a market economy, producers engage in competition by: offering lower prices. specializing their products. improving quality. giving consumers many options.

offering lower prices.

Specialization occurs when a corporation concentrates on producing __________. low-quality items limited supplies of a good one particular good or service rare and authentic items

one particular good or service

Which of the following is NOT an example of the invisible hand in action? - producers offer people what they want - competition results in decreased prices - producers work together to increase prices - consumers have desirable products

producers work together to increase prices

The invisible hand of the marketplace refers to the idea that self-interest and competition work together to ensure that the market __________. is not threatened by foreign competition never needs any type of government regulation creates enough jobs to keep citizens throughout the nation fully employed provides the goods and services consumers want at reasonable prices

provides the goods and services consumers want at reasonable prices

Adam Smith believed that the role of the government should include all of the following EXCEPT: - ensuring a stable and peaceful nation - providing a stable and secure economy - guaranteeing an honest judicial system - granting patents and copyrights

providing a stable and secure economy

The invisible hand is created when __________ and __________ work together. specialization . . . self-interest self-interest . . . competition specialization . . . competition confidence . . . economic freedom

self-interest . . . competition

Adam Smith believed that the invisible hand would enable the economy to be __________. self-regulated socially structured government regulated permanently stabilized

self-regulated

High quality goods and services are made available to consumers because of producers __________. hold self-interests would like to compete look for subsidies specialize in production

specialize in production

Economic growth promotes a higher __________. rate of production cost of living rate of consumption standard of living

standard of living

Specialization makes each of the following possible EXCEPT: surplus of goods and services goods available in a short time frame variety of goods and services high-quality goods and services

surplus of goods and services

Adam Smith's ideas that are present in the day-to-day workings of the US economy include all of the following EXCEPT: invisible hand specialization trade regulation economic freedom

trade regulation

Each of the following is a sign of economic freedom EXCEPT: producers produce what is profitable wages and prices are controlled by the government people save, spend, and invest money as they wish consumers use private property for their own benefit

wages and prices are controlled by the government