ECO 3303 Test Questions

Who were the scholastics? When did they write, who were the most important scholastic writers, and what were the main ideas they developed?

-educated monks that wrote religious guidelines for secular activity-most important was St. Thomas Aquinas, developed ideas on private property rights, just price, and usury

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

Adam Smith believed that college professors should be compensated by their students. When Smith observed the college education of England he saw meager intellectual activity and low quality instruction, he linked this to the income of professors being independent of the students they attracted.

Compare and contrast the ideas of Edward Chamberlin, Joan Robinson, and Joseph Schumpeter on the effects of product differentiation.

-Chamberlin coined the term "product differentiation" to describe how a supplier may be able to charge a greater amount for a product than perfect competition would allow.Chamberlin argued that the major difference between monopolistic competition and perfect competition is the product differentiation that exists under monopolistic competition.-Schumpeter: The essential point to grasp is that in dealing with capitalism weare dealing with an evolutionary process. . . . Capitalism, then, isby nature a form or method of economic change and not onlynever is but never actually can be stationary.For Schumpeter the entrepreneur is the disruptive, disequilibratingforce that dislodges the market from the somnolence of equilibrium;-Joan Robinson's book is viewed as an essay in welfare economics. She assumes theworld as a set of monopolists, rather than competitors, attempting to clarify her positionabout the concept of perfect competition versus imperfect competition and monopoly.

What was The Coal Question that troubled William Stanley Jevons? Discuss the relationship between the ideas in The Coal Question and the ideas of economists both before and after Jevons. Is there any factual historical evidence to support these concerns?

-Coal in truth stands not beside but entirely above all other commodities. It is the material energy of the country — the universal aid — the factor in everything we do. With coal almost any feat is possible or easy; without it we are thrown back into the laborious poverty of early times. With such facts familiarly before us, it can be no matter of surprise that year by year we make larger draughts upon a material of such myriad qualities — of such miraculous powers.Jevons paradox is the observation that improved energy efficiency can increase the overall consumption of energy by making an activity cheaper and thus more scalable or accessible.No widely applicable. some people don't care enough about efficiency to affect consumption. does make sense with space travel and it becoming more efficient and more people want to do it.

What is Say's law? Who first presented that idea? Who gave Say's law its name? Explain the relevance of Say's law to twentieth-century macroeconomics.

-John Baptiste Say-Say's law states that the production of goods creates its own demand.-This theory assumes that markets clear and that businessmen produce goods that are demanded by the market.

Explain Carl Menger's distinction between goods of the first order and higher- order goods. What determines the value of higher-order goods, according to Menger? Do you accept Menger's explanation? What is the alternative that Menger was arguing against?

1. the value of goods of higher order is dependent on command of corresponding complementary goods (horizontal coordination of value)2. value of goods of higher order stages are dependent on command of complementary goods of all lower orders and all higher orders (vertical coordination of value) (upstream/downstream bottleneck)3. value of goods of higher order is derived from corresponding goods of lowest order (derived demand)4. value of (generalized factors of production) are not exclusively dependent on satisfying any one human need.

Discuss the main ideas of John R. Commons. What influence have his ideas had on contemporary economics?

-John R. Commons (1862-1945)-heterodox economist from the midwestern United States-contributions to economics in three broad areas: social reform, graduate education, and labor economics.- "the intellectual origin of the movement toward the welfare state."-Because an unregulated economy produces undesirable social consequences, capitalism needs to be modi ed by governmental intervention. Monetary policy to prevent depression, legislation to recognize the right of labor to organize, workers' compensation to assist the unemployed, health and accident insurance to care for the unfortunate, regulation of public utilities to prevent monopoly practices, and other social reforms were advocated by Commons. us, although he had almost no impact on orthodox theory, the reforms he advocated and helped to implement have signi cantly in uenced the institutional structure of American capitalism.

Explain the key idea in Malthus's Essay on Population. Discuss the way in which this idea relates 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.

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

18c How is Wealth Created?How arose: Industrial Revolution (and leadership) Agriculture & ManufacturingMercantilists>business interest, accumulation of gold and silver, believed in manufacturing and no importing to cut down on competitionPhysiocrats>French, believed wealth comes from the land-consumption capability not money, what you can buy w/it, agriculture 85% of their economyAdam Smith>believed the division of labor increases productivity, creates wealth limited by extent of market which is ever expandingTransition: reaction to the conditions of the industrial revolution/Malthus19c What determines Value?Thomas Malthus> essay on population spoke of wealth creation being irrelevant if the population was doomed to be stuck at a subsistence levelDavid Ricardo: agreed w/Malthus. He provided the Labor theory of Value (value of a good =value of labor embodied: supply side)John Stuart Mill: developed off of Ricardo, utilitarianismMarginal Revolution: utility theory of value (demand side)Transition: Alfred Marshall said value is determined by both supply and demand20c What are the properties of economic equilibrium?Alfred Marshall: answered the 19th century question of whether supply and demand determine value, says it is both. He created supply & demand model, which explained price and quantity equilibrium in the marketJohn Maynard Keynes: attempt to explain prolonged unemployment and new conditions of equilibrium, wanted the gov't more involvedTransition: moving into the 21st century the main issue would be maintaining economic growth.

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? Be sure to support your answers by referencing the ideas of Smith and Ricardo.

Adam Smith believed that the future was bright in a market driven economy, he saw the division of labor and prosperity only being limited to the extent of the market (which was limitless). Ricardo had a more dismal view on prosperity in a market economy because he believed that society would eventually be stuck at a subsistence level (or at the minimum needed to survive). In recent history it is apparent to see the tremendous reduction in poverty (less starvation, high mechanized jobs for many, microwave ovens, electricity, etc.) If we compared the future today with Ricardo's dismal view of subsistence, it would appear that the extent of the market has increased like Smith predicted. Contemporary economic thought generally describes economics as making choices in society impart to scarcity, the majority of society believes that natural resources will eventually deplete to the point where the general population cannot be supported (Ex. collapse by Jared Diamond) at the same time however scarcity up until this point has forced individuals to come up with creative ideas. Therefore it is also a possibility that economics can be redefined as how individuals cooperate to meet their needs. Yet, Ricardian principles are more closely related to contemporary economic thought.

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

Alfred Marshall is the economist credited with creating the idea of a partial equilibrium. Marshall said that it is not just supply or not just demand that creates value but a combination of the two that delivers the market at equilibrium. In addition to the ideas about marginal utility and consumer and producer surplus, Marshall was able to create models to simplify the ideas and show how everything came together to create market equilibrium. These models are now critical throughout the study of economics because they allow a clear and concise representation of the fundamentals or theories being explained. These ideas discredit Ricardo's labor theory of value and Say's law that supply creates its own demand.

Keynes argues that "animal spirits" control investors' decisions on how to allocate investment resources, resulting in irrational investment decisions and excessive volatility of investments. When Keynes then looks ahead, what does he expect to see happen to stabilize investment behavior in the future?

Animals spirits control investment demand. There should be fiscal policy to counteract animal spirits and government spending to control the macro economy. He wrote that if the demand is higher than the economy can produce there will be inflation. His response to this was called Functional finance and it said the government can use fiscal policy to cut aggregate demand and the either raise taxes or cut government spending. Keynes argued that investment from the private sector sometimes led to inefficient macroeconomic outcomes, thus a response from the public sector was needed, such as monetary policy actions by the central bank and fiscal policy actions by the government in order to balance out the inefficiencies.

Discuss the similarities and differences in the way the work of John R. Hicks and Paul Samuelson influenced the development of twentieth century economics.

Both Hicks and Samelson were followers of Keynes. Hicks created the IS/LM model which showed the properties of micro equilibrium. Both wanted to make keynesian economics the dominant way of looking at microeconomics. The difference was Hicks did not display and support his theories with mathematics, but they were the cornerstone of Samuelsson' theories.

Compare the ideas of John Locke and Thomas Hobbes, and explain how those ideas were applied to the development of economic and political systems.

Both Locke and Hobbes were social contractarians. Locke believed in individual rights such as the right in owning oneself and one's labor, property and resources (product of labor) he saw it as the gov'ts right to protect these rights. (ex. land in far west 1800s) Hobbes view was that their was a need for a social contract. In his 'Leviathon' he stated that all are obligated obey the rules of the sovereign, no matter who the sovereign were. Locke's ideas of owning the product of one's labor lead to the development of the free market economy.

Compare the ideas of John Locke and Thomas Hobbes. Explain how Locke's ideas on philosophy are related to economics.

Both Locke and Hobbes were social contractarians. Locke believed in individual rights such as the right in owning oneself and one's labor, property and resources (product of labor) he saw it as the gov'ts right to protect these rights. (ex. land in far west 1800s) Hobbes view was that their was a need for a social contract. In his 'Leviathon' he stated that all are obligated obey the rules of the sovereign, no matter who the sovereign were. Locke's ideas of owning the product of one's labor lead to the development of the free market economy.

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.

Britain was a lot more decentralized than other governments in Europe, the product of this was a more competitive environment and less barriers to trade. The british crown had a lot less power than other European states, such as Spain, France, and Germany. China also had a top down economy that prevented industrialization to its full potential and created barriers to trade. The British Common Law gave power to smaller municipalities in exchange for taxation for war, it also allowed for production and decision making free of many governmental regulations (including wage regulation)

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.

Excess assumptions sometimes get in the way of inferences that could be made otherwise, and these assumptions ultimately hurt a model's usefulness. ex. price ceiling model to explain effects of price gouging, and the gasoline shortage in the 1970s. Some simplifying done by economists in advance is assuming that the market is perfectly competitive and helps the model become a good simplified depiction of reality. Therefore in simplifying models economists focus on what information is relevant to the problem at hand.

Describe the differences between Irving Fisher's equation of exchange and the modern "Friedman" equation. Why do the differences matter from the standpoint of monetary policy?

Fisher's original equation of the quantity theory of money was MV=PT with T being the total amount of transactions being carried out with the money supply. However, this equation did not account for independents making exchanges, nor did it account for government spending. Firedman therefore updated and modified the equation to account for these by replacing "T" with "Q" which stands for the total GDP. Obviously this is a key difference because it fully accounts for all spending, not just in a selected market.

What was Hermann Heinrich Gossen best known for? What impact did his ideas have on the development of economics?

Gossen is most known for having a mathematical representation for marginal utility, and trying to come up with a mathematical representation of economics. This shows that the idea for marginal utility was came about before the 1870s.

Heilbroner argues that land, labor, and capital, as marketable factors of production, have only existed for a few hundred years. Explain his reasoning, and discuss the degree to which his reasoning seems valid.

Heilbroner observed that capitalism and market economies allowed for industrialization to occur (specifically during the industrial revolution), even though a system of trade had been in place for thousands of years. Before IR, most commerce was done by sea, but during the industrial revolution, transportation and communication evolved, also before IR there wasn't much of a market for land since people held onto it for their families. Heilbroner was able to attribute the prosperity of the era to the free market and capitalism that fostered competition. An example of this was the Dutch east India trade that stock markets came into being and brought trade to a new era of capitalism. This competitiveness of this era also enabled major producers of the time to continue improving the products they sold to the general public. Therefore new advancements continued to take place and society was bettered as a whole.

What is meant by "heterodox economics? Discuss the influence of heterodox economists on the development of economic ideas.

Heterodox economics is a school of thought that is described as "revealed illegitimacy." Essentially this means the "flavor" was not recognized as mainstream; as a result it was contrasted from orthodox economics. Heterodox economists were needed to further economic thought and progress. W/o those outlets to push boundaries to see economics from another perspective the mainstream/orthodox would have never been presented with shortcomings or inconsistencies in their models. It was through heterodox economics that classical economists were able to emerge from the mercantilists, and the neoclassical were able to emerge from the classicals

What were the main contributions to economics of Richard Cantillon?

His book Essay on the Nature of Trade in General is considered to be the first tritis in economics and he introduced the word entrepreneur for the first time.

Discuss the main contributions to economics of David Hume.

Hume wrote the book Political Discourse and in it he introduced the quantity theory of money. He created the species-flow mechanism which states money flows from countries of high priced goods to countries of low priced goods and that causes money to more towards equilibrium. He also said the more economic freedom leads to more political freedom and opposed mercantilism.

Explain the main contributions of Eugen von Bohm-Bawerk, and explain how those ideas laid the foundations for later theories developed by Ludwig von Mises and Friedrich Hayek.

In his book Capital and Interest, he explores the economy's time-consuming production processes and of the interest payments they entail. He discussed how production becomes more efficient over time as more complex interactions yield higher return. He also critiques Marx's exploitation theory by arguing Capitalists do not exploit workers; they accommodate workers-by providing them with income well in advance of the revenue from the output they helped to produce. Mises was a student of Bawerk's and his work was influential in Mises' theory of praxeology and monetary theory of the business cycle. His influences can also be seen in Hayek's business cycle theory and he nature of change shown in the Hayekian triangle.

One might argue that entrepreneurship is the key ingredient to economic progress. Discuss how the concept of entrepreneurship relates the the main ideas of Adam Smith, Leon Walras, and Friedrich Hayek. Discuss the similarities and differences in their approaches.

In the Wealth of Nations Adam Smith champions capitalism and how the division of labor couple with rational self interest creates a market economy which creates wealth. Smith would argue that an entrepreneur is a necessary part of the market and leads to increased productivity. Walras and Hayek both agree what the entrepreneur is important for economic progress but differ on how so. Walras believes he is an equalizing market force that follows a stipulated set of behaviors that creates equilibrium in the market. Hayek work on business cycle theory and felt that entrepreneurs where necessary for business cycle because they took profits and reinvested them as capital which would eventually earn more profit to be reinvested.

Discuss the influence that Sir William Petty had on the key ideas of Adam Smith and Thomas Robert Malthus. Were Smith and Malthus in agreement with Petty, or did they argue against him?

It was Sir William Petty believed in a laissez faire econo my, and that barriers to trade were harmful to the prosperity of a nation. He warned about gov't who interfered too much in an economy, and that restricting the flow of specie was harmful. Petty believed the division of labor as a factor making goods both better quality and cheaper. (watch vs. pin factory example). He also created a model for population growth that looked at growth backwards. Smith agreed with Petty's ideal of comparative advantage and Malthus used Petty's model on population growth to influence his exponential growth idea.

Briefly discuss the influence of John R. Hicks on the development of macroeconomic theory.

John Hicks contribution to economics the IS/LM model which surmised Keynesian economics and showed the properties of micro equilibrium. Hicks also builds everything into a general equilibrium framework. His work is what is considered Keynesian economics.

What were John Locke's main contributions to economics, politics, and philosophy?

John Locke was a social contractarian who formulated his own beliefs about anarchy. Locke believed citizens had the right to themselves and their labor. He believed that since people had these rights that it was the government's job to protect these rights.

Who developed the theory of surplus value? Explain the two ways that surplus value is created?

Karl Marx is the economist who developed the theory of surplus value. Marx says surplus value is created by capitalists who exploit workers to convert raw materials into goods and capitalize on the value of the produced goods while only paying the labors a subsistence wage. Marx talks about how capitalists extend the work day which increases labor time creating more surplus value. When the capitalists don't increase wages for this extra time work the surplus they earn is called absolute surplus value. This is different from relative surplus value which is created when productivity goes up so labors produce more value in less time but are not paid an increase in wages that matches the increase in productivity so the surplus value continues to go to the capitalists.

While Ricardo and Malthus agreed on many things, they also disagreed in a few significant areas. Discuss those areas of disagreement, and explain which economist's argument had more merit in each case.

Malthus and Ricardo disagreed on the corn laws which prevented Britain from importing grain & corn. Malthus believed that the laws were good policy because it would increase domestic profit, Ricardo however disagreed because he took comparative advantage into account. Since Ricardo believed that land was scarce, he saw more land in different areas, he concluded that it would be more productive for nations to trade corn & grain. Ricardo and Malthus also disagreed on Say's Law, Ricardo believed that there were no gluts while Malthus saw evidence of these gluts in a subsistent world, he argued that their would need to be pure consumers, but the capitalists saved and workers did not have enough wealth to buy the necessary amount of goods, and because of this difficulties in fully employing resources.

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

Mandeville rejected any ideas of moral sense being related to economics he argued that all social virtues evolved from an instinct of self preservation; Mandeville however, linked morality and prosperity by condemning idleness. He also argued in favor of government control towards channeling activities toward social good. To Mandeville, this meant a laborious poor and exports exceeding imports for the creation of wealth.

What were Alfred Marshall's main contributions to economic theory? Discuss how his ideas influenced the development of economics in the 20th century.

Marshall started the dominance of the Cambridge school. He wanted to find what determined value but discovered that it is both supply and demand that influence equilibrium. He also developed the idea of consumer surplus. Marshall's framework for market forces, the partial equilibrium model, are still used today as introductory lessons into economics

What were the main contributions to economics of Sir William Petty?

Petty wrote Political Arithmetic, which was his most prominent writing. He observed reverse population growth, specifically in the case of London.

What is Say's Law? Discuss the viewpoints on Say's Law held by David Ricardo and Thomas Robert Malthus. Did they agree or disagree? What were the arguments of each?

Say's law essentially states that supply creates its own demand (aggregate production necessarily creates an equal quantity of aggregate demand). Ricardo and Malthus also disagreed on Say's Law, Ricardo believed that there were no gluts while Malthus saw evidence of these gluts in a subsistent world, he argued that their would need to be pure consumers, but the capitalists saved and workers did not have enough wealth to buy the necessary amount of goods, and because of this difficulties in fully employing resources.

Joseph Schumpeter and Israel Kirzner both depicted entrepreneurship as a crucial economic activity, yet they had strikingly different interpretations of the role entrepreneurs play in the economy. Compare and contrast Schumpeter's and Kirzner's ideas on entrepreneurship.

Schumpeter believes that profit is a necessary part of the economy because it is what lours entrepreneurs to innovate. This innovation disrupt equilibrium and can be seen as creative destruction because the new innovation destroys the old way of doing something and earns a greater profit for the entrepreneur. Kirzner's entrepreneur is different because he doesn't disrupt equilibrium he is the equilibrating force. Kirzner thinks that an entrepreneur is someone who notices a profit opportunity and exploits it. He recognizes that after an entrepreneur notices a profit opportunity competitors will also enter the market and drive the prices down to equilibrium

Compare and constrast Joseph Schumpeter's view of profits with the view of Karl Marx. Where do profits come from? What causes them to decline?

Schumpeter thought profit was necessary for economic efficiency. Profits are the extra value companies create for customers. Profits decline when progress in the business cycle happen too fast and some resources are not reallocated. Marx argues that profits originate from a "surplus value" in that capitalists earn their profit by exploiting the working class by not paying them equal wages for the hours they work. Schumpeter's view on profits is that profits originate from innovation and entrepreneurial activities. Marx argues that the decline in profits are a result of investment of technologies that replace physical capital. "Declining rate of profit states that if you replace labors with machines(innovation) there will be less exploitation of labors so less profit. Also capitalists compete down the prices." Schumpeter argued that decline in profit is a short-run result of creative destruction

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

Single tax is the government should be funded by a 100% tax on the sale of land because land is a factor of production. This was the idea of Henry George.

What was the main argument underlying Adam Smith's Theory of Moral Sentiments?

Smith believed that morality and economics were related. He devised in Moral Sentiments the idea of the "impartial observer"- this theory spoke of what the opinion of the general public would be in order to come to a consensus on morality. John Rawls, came up with a similar idea known as the veil of ignorance. This idea explained that if one is unaware of their intelligence, strength & skill one will not pre-access their social standing in society.

Explain the diamond-water paradox. Who originally posed the paradox? How do economists resolve it? Who came up withultimately resolved it with the answer economists accept today?

The diamond/water paradox poses the question of why water which is needed to live has much less value than diamonds, which are not necessary for survival but have much greater value. Adam Smith proposed the paradox, he spoke of two different types of value that these goods held. He used the terms 'value in use' and 'value in exchange'. Smith proposed that while water had a greater value in use, diamonds held greater value in exchange. This theory helped to propose 'labor theory of value' in which the value of a good is determined by the time comprised producing that good.

What is the first subject Adam Smith discusses in The Wealth of Nations? Why is this significant?

The first subject was that a nation's wealth is dependent on the division of labor. This is significant because even though it was the first sentence, it was the thesis for his entire work.

One can make the argument that the modern market economy only came into being within the past 300 years, when land, labor, and capital began being viewed as marketable factors of production. Yet trade has existed for thousands of years. Explain the reasoning behind this argument, and discuss the degree to which this reasoning seems valid.

The industrial revolution brought about the modern market economy. Before there was manufacturing on a wide scale the economic system was that of feudalism. Under this system individual activity and demand was not rewarded or recognized because all the profits of labor went to the manor incharge of the laborers. The church dictated life outside of work and many people gave their extra time and money to the church. While there was some international trade, it wasn't until after the ideas of manufacturing and specialization that production of good for the market became a relevant practice. Due to these advances in technology production of goods became more important and land, labor, and capital started to get bought and sold in markets. The economy started to change from a feudalist economy to a market economy

Ricardo identified the 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 payments to each of these factors would change.

The payments made to land labor and capital are rent, wage, and profit. Ricardo believed that rent did not need to be paid in order for land to be productive, this was contrasted to wage which needed to be paid for laborers to be attractive. Ricardo said that as exponential population growth occurred, the land becomes overworked and food prices rise, because of this the subsistence wage of a worker must also grow.

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 french economists who believed that the wealth of nations was derived solely from the value of agriculture or land development. In addition the physiocrats believed that agricultural products should be highly priced

Discuss the ideas of the Spanish economists around the time of Adam Smith. What types of ideas did they espouse? Why were their ideas not as prominently known as Smith's? Why did their ideas ultimately have less influence than Smith's?

The spanish economists around the time of Smith had ideas encouraging a laissez-faire economy. They were mainly pamphleteers & anonymous persona who feared speaking out against the government, compared to a relatively politically free Britain. Because of the controlling government in Spain, the ideas of the Spanish economists were not as prominent as Adam Smith's

What was the main factor that Adam Smith said was responsible for increasing the wealth of nations?

The wealth of nations is caused by the division of labor.

Compare and contrast the ideas of Menger, Jevons, and Walras, the three economists who are credited with initiating the marginal revolution in economics.

These three economists are considered the Neoclassical Economists and they are credited with starting the marginal revolution. Menger is credited with creating the "utility theory of value". This theory states that value is determined by the subjective need of the good. Subjective need is determined by the utility consumers place on the good. This means consumer will demand the good until the price of the good exceeds the value they placed on the good. This also means that the value of inputs are determined by the value consumers place on the output product they produce or the value of producer goods are determined by the value of consumer goods. Jevons expanded on Menger's ideas by adding calculus to the utility theory of value. He agrees that it is easier to determine the value of the product than it is to determine the value of the inputs needed to produce and then value the product. He also used calculus to determine that final degree of utility in two uses of goods has to be equal in consumption of goods. Walras worked on marginal utility as well as Jevons and Menger but was more mathematical in his approach. He looked at the entire economy instead of the partial equilibrium model and developed the general equilibrium framework. Walras illustrated his model throughout the concept of the Walrasian Auctioneer. The Auctioneer calls out prices of a product until it matches the highest utility a consumer places on a good and then an equilibrium price is established

What did Keynes think was the primary cause of the Great Depression? What policies did he advocate to return the economy to full employment?

Too little demand. Deficit is ok to help get out of a depression, "here's how gov should respond to depression through policy. Keynes believed the Great Depression was a result of a lack of government spending, thus he advocated that increased government spending would increase consumption and give rise to employment, as opposed to the classical economic belief that lower wages for workers would give rise to employment

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

Value to the merchantalists surrounded the idea of the accumulation of gold and silver, or how much bullion a nation had determined their well-being. The physiocrats saw value in the land and what resources could be created through agriculture. Smith argued that value was created through the division of labor which ultimately increased capital and broadened the extent of the market (which is ever extending) Ricardo however, saw a good only being as valuable as the labor embodied in the good, or the Labor Theory of Value. Karl Marx agreed with Ricardo about the value of a good being determined by labor embodied, but also developed his own ideas with The Surplus Theory of Value. Marx believed that as workers created value in excess of their labor costs, that this value was appropriated by capitalists as profit. Alfred Marshall viewed the Labor Theory of Value as being oriented on supply, and argued that the value of a good is determined by both supply and demand.

Discuss the main contributions to economics of Thorstein Veblen.

Veblen developed "The Theory of the leisure class" where he talks about conspicuous consumption were consumers buy stuff just to show off. He also talks about the bandwagon effect where consumers feel the need to have the same things as others. He has institutionalist approach to economic analysis and thinks that business people want to confuse or upset the market to earn profits.

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.

Wicksell tried to develop a so-called income approach to explain the general level of prices; that is, to develop a theory of money that explains fluctuations in income as well as uctuations in price levels.John Maynerd Keynes and keynesian economics

Carl Menger, William Stanley Jevons, and Leon Walras are often described for the similarity in their ideas on value. Explain how their ideas on value were different from one another, and discuss the lasting influence that those differences have had on the development of economic ideas.

-Menger, Jevons, Walras were all considered to be neoclassical economist -Marginal analysis was fundamentally deductive in its approach, using highly abstract models of households and rms, which were assumed to be trying to maximize utility and profits.- the marginalists were in agreement that economics was largely concerned with resource allocation, or microeconomics, but they had di erent views about the appropriate methods to be used: Jevons advocated more empirical work; Menger, abstract deductive logic; and Walras, mathematics.-all three believed According to the marginal utility theory, value depends instead upon utility, or consumption, and comes not from thepast but from the future.-Whereas the classical economists had in essence assumed that demand was given and concluded that supply determined price, Jevons and Menger assumed that sup- ply was given and concluded that demand determined price. Walras had a much clearer understanding of the value problem in that he recognized the mutual interdependence of the parts of an economy.

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?

-Prize motivation: "for his development of the contractual and constitutional bases for the theory of economic and political decision-making." PUBLIC CHOICE -The central idea of the public choice school is that individuals are as rational in their interactions with government as they are in their economic a airs-influence: John Stewart mill ? frank knight?... think its frank knight

What was the socialist calculation debate? Who were the main participants? Explain both sides, and discuss the strengths and weaknesses of each position.

-The socialist calculation debate was a debate between proponents of socialism and proponents of capitalism. -was a debate between two sides of socialists regarding the utilization of markets and money in a socialist system & to what degree that law of value would be applied to a socialist system-Von Mis and Hayek argued that without individuals determining the price at which they are willing to pay for a good, no feedback can be taken and thus the market cannot adjust where necessary. -There were criticisms to this argument due to miles assumption that socialism is "impossible" rather than it simply being "inefficient"

Explain Karl Marx's theory of surplus value, making sure to differentiate relative surplus value from absolute surplus value.

-The theory of surplus value assumes that labor is the only commodity that increases surplus value, which is used as profit from capitalists. -Absolute surplus value states that increasing the length of the working day will increase surplus labor time. -Relative surplus value is generated by cutting wages or reducing the cost of living, which reduces necessary labor time in proportion to the surplus value extracted.

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

-Wrote Principles of Political Economy, which was like a textbook and went over everything you need to know about political economy-Was most influenced by Adam Smith and David Ricardo, which he elaborated on their ideas in his books -Mill's book on Political Economy was the standard book after it was written and for many years after, which had to have influenced economists that were after him

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 the increased quantity of money and in other countries.

Hume created the idea of species-flow mechanism, this was the idea of 'international price adjustment.' What this meant for the increasing/decreasing of gold in a nation was that as the quantity of gold rises in one nation and decrease in another, the country with increasing species (gold) would contract inflation, as prices rose the buying of products from that nation would fall and the species would begin to flow in the nation with cheaper prices. Because of this the flow of money would remain balanced. A good example of this mechanism is the mercantilists who believed in holding as much gold and silver as possible, as their prices rose in relation to that of their competitors (i.e. france) the flow of species would shift, and vice versa.

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?

Hume created the idea of species-flow mechanism, this was the idea of 'international price adjustment.' the ideaing of gold in a nation was that as the quantity of gold rises in one nation and decrease in another, the country with increasing species (gold) would contract inflation, as prices rose the buying of products from that nation would fall and the species would begin to flow in the nation with cheaper prices. Because of this the flow of money would remain balanced. A good example of this mechanism is the mercantilists who believed in holding as much gold and silver as possible, as their prices rose in relation to that of their competitors (i.e. france) the flow of species would shift, and vice versa.

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

Jeremy Bentham's main contributions were his belief that public policy could be viewed as scientifically as physics. He believed that one could quantify utility in order to benefit cardinally, however Bentham failed to realize that utility could only be quantified ordinally, his fault was in ranking orders but not magnitudes. He developed economic ideas through the proposed progressive tax system. He believed that the rich did not benefit as much from money as the poor could. Because of his fault in context of number ranking, his views on this matter did not hold up.

What was the major lasting contribution that William Stanley Jevons made to economics? In developing his contribution, whose ideas did he say he was trying to overturn? Why was he trying to overturn them?

Jevons expanded on Menger's ideas by adding calculus to the utility theory of value. He agrees that it is easier to determine the value of the product than it is to determine the value of the inputs needed to produce and then value the product. He also used calculus to determine that "final degree of utility in two uses of goods has to be equal in consumption of goods."Jevons lasting contribution to economics was his theory of utility, where very extra unit of a good had less value, which railed against the theories of David Ricardo who believed value rested entirely on the production process, clearly the opposite of what Jevons believed to be the answer to "what determined value?"

Karl Marx, Joseph Schumpeter, and Alfred Marshall all depict the origin and significance of profits differently. Compare and contrast their views on profits. How are profits created? What is their significance in the economy? Are profits desirable or undesirable? Why did these three economists view profits differently?

Marx believed profits originated from surplus value, in which the worker is paid less than the value of his hours worked with the capitalist keeping the difference. Schumpeter argued that profits were a result of innovation and entrepreneurial activities within the marketplace. Marshall argued that there are two types of profits "normal Profits" that come from routine administrative work carried out by managers, and extraordinary profits that come from entrepreneurs through their own innovations in the marketplace. Whereas Marshall and Schumpeter think the profits are good and Marx thinks they are bad. Marshall and Schumpter thing they are good because they benefit the marketplace and create more innovation. Marx thinks they are bad because they support his theories on the exploitation of labor and he sees the capitalists as greedy figures that take what is not rightfully theirs.

Carl Menger argued that costs are subjective. What does this mean? What alternative to subjectively-determined costs was Menger arguing against? When Alfred Marshall argued that the value of a good is determined by both supply and demand, does this suggest that Menger was wrong about the subjective nature of costs? Discuss the relationship between Marshall's and Menger's ideas on this subject.

Menger believed that instead of possessing units of utility, good's values instead were determined by their varied use of importance. The ideas of Menger and Marshall are actually closely aligned, in that Menger's subjective theory of value claims that both supply and demand benefit from exchange. Menger was simply pointing out that some goods are more valuable than others and thus in a barter economy, it is difficult to trade a lesser good for the perceived greater good, but the introduction of money is always an acceptable medium of exchange

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

Mercantilists thought all raw materials found should be used in domestic manufacturing since finished goods are more valuable. They believe goods should be finished at home using raw materials & exported. They believed that if anything were imported it should be raw materials paid for by trade and not gold & silver. Can't export gold or silver and must keep money in circulation domestically

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 nation's wealth.

Mercantilists> believe goods should be finished at home using raw materials & exported; they believed that if anything were imported it should be raw materials (paid for w/bartering and not gold & silver)Physiocrats> were all about wealth creation coming from the land, they believed that wealth was not measured by gold & silver but what could be produced- products for consumption and physical crops

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?

Mises argued that laws of social world interact like that the physical world, or that supply & demand would hold up in the same way as the law of gravity. Because of the visible progress of society, instruments recently have allowed for the study of these these social properties.Von Mises argues this because prior to the institution of capitalism, the economy did not grow or change, it simply remained rooted in the same system. As it began to develop, intellectuals began to study its development and sought to explain its processes through their own theories. Because economics was the last of the sciences to develop behind other more obvious sciences such as astronomy, chemistry, or meteorology, it can be considered the "youngest"

Economists use simplified models to depict a more complex reality. Discuss the role of simplifying and unrealistic assumptions in economic models. Do such assumptions enhance or detract from a model's usefulness?

Models are extremely useful in conveying economic thinking and ideas. The real world is incredibly complex and it is impossible to make a model that satisfies all real world conditions. Due to this models simplify away many external factors to get a basic understanding of how different factors affect different parts of the economy. These assumptions enhance the models usefulness because it gives economists the best visuals of what happens in ideal market scenarios.

What was Jean-Baptise Say's primary contribution to economics? Explain how his ideas were used and interpreted by later economists.

Say worked to developed "Says law" which states that supply creates its own demand. He also says that this leads to an oversupply of goods in the market (GLUTS). Ricardo agreed with Say but thinks that there is only an oversupply of one good if there is a matching undersupply of another. The economist JS Mill supported Say's law and Ricardo's Labor Theory of Value and used these two ideas in his treatise on the political economy. Alfred Marshall disagrees with Say because he feels that it is both supply and demand that come together to create and equilibrium value. After the Great Depression the economist Keynes argued that Say's law is wrong and that is why there was a depression. He said that an overproduction of unneeded goods lead to too little demand and that capitalists hid or lost their profits instead of reinvesting them and that is what cause the market to regulate at a level that doesn't reach efficiency.

What were the key policy ideas of the mercantilists? Explain the logic of the mercantilist 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 mercantilists were English businessmen who were motivated by success and profits. Because of this they had several key policies that they believed would help them achieve this. The mercantilists viewed raw materials as something that should be imported only if absolutely necessary, and if imported that these goods should be bartered for (instead of using gold & silver), and that goods exported should be paid for in gold and silver. These goods could ultimately be used for the finishing of products on domestic soil. What should be exported, however were finished goods and that every inch of soil be used to produce these goods. Mercantilists wanted to create a trade surplus through having exports exceeding imports, or constantly seeking a surplus balance of payments. They believed in the accumulation gold and silver (bullion) and in the maintaining of this bullion in ones own nation was on what prosperity was dependent. The mercantilists also saw a large working population as a necessary to keep jobs on domestic soil and in order to increase the amount of finished goods for trade.

The ideas of Thorstein Veblen, Wesley Clair Mitchell, and John R. Commons are often linked together. Explain both what they had in common, and discuss each individual's ideas to illustrate their differences.

These three economists were the main contributors to institutional economics which believed the evolutionary process and the role of institutions shapes economic behavior. They used these principles to each analyzed a different aspect of the American economy. Veblen focusing on the unnecessary waste of wealth and resources to demonstrate one's own personal success. Commons proposed his theory that the economy is in-fact a complicated web of social interaction and relations built through these interactions, giving the incentive for all players to work cooperatively to advance each other's interests. Mitchell focused on empirical work on business cycles and leading the National Bureau for Economic Research in its early decades

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

They did not think that trading gold and sliver would make them more wealthy. Wealth is valued by how much gold and silver you have. So trading it away would be trading wealth away.