Smith (cont.) and Ricardo Justice in Political Economy: The Market, - - PowerPoint PPT Presentation
Smith (cont.) and Ricardo Justice in Political Economy: The Market, Free Trade and Comparative Advantage The Theoretical Freedom Vision 1780 Last Witch burned in Europe 1784 American Society to Abolish Slavery 1787 British Society to
Reason Individualism Political Liberalism Individual Freedom Happiness Capitalism Wealth and natural freedom
____ Hobbs Locke Rousseau John Stuart Mill Thomas Jefferson Locke Mill Jefferson Adam Smith 1780 Last Witch burned in Europe 1784 American Society to Abolish Slavery 1787 British Society to Abolish Slavery 1792 Wollstonecroft “Vindication of Rights of Women
Consumer
production, distribution and consumption of goods and services of an economy.
a private-enterprise system such that all resources are privately
social interest, although only a private interest was intended.
communist system, such that all resources are publicly owned with intent of minimizing inequalities of wealth among other social
as capitalism).
some aspects of the market approach as well as some aspects of the planned approach).
as socialism, or a command economy).
communism
Distribution Consumer Demand Production
competition Price Consumption
The Consumer
worth less than they cost to produce do not;
the value of the inputs they use when they buy them from their
in the market
their goods. If a good sells for more than it costs to produce-- because it is demanded by consumers, the producer receives more than he pays and makes a profit;
takes a loss. So goods that should be produced are produced
– Markets arise spontaneously – Distribution is impersonal and takes place through exchange – Distribution is voluntary and non-coerced – All parties to exchange will benefit – Coordination in allocation without coercion – Private Property is respected and required – Value is determined by price—market value – The state should have a minimal role
cost to produce get produced, goods worth less than they cost to produce do not;
pay the value of the inputs they use when they buy them from their owners
If a good sells for more than it costs to produce, the producer receives more than he pays and makes a profit;
Distribution Consumption Production
Distribution Consumption Production
Wine Cloth England 3 5 (Total production =8) Portugal 9 6 (Total production=15) Total goods produced = 23
Wine Cloth England 1 10 Portugal 16 Total goods produced = 27 note: efficiency increases total number of goods available
Wine Cloth England 5 6 (available goods =11) Portugal 12 4 (available goods =16) Total goods produced is still 27 but each country is better off than before trade and both are better off than before “efficiency” England trades Portugal 4 units of cloth for 4 units of wine Exchange rate is 1 to 1.
economists used to explain patterns of international trade did not fit the data.
– The Hecksher-Ohlin model predicted that trade would be based on such factors as the ratio of capital to labor, with "capital-rich" countries exporting capital-intensive goods and importing labor-intensive goods from "labor-rich" countries.
trade takes place between countries with roughly the same ratio of capital to labor.
– The auto industry in capital-intensive Sweden, for example, exports cars to capital-intensive America, while Swedish consumers also import cars from America.