Notes_StudyGuide - LE 344 Notes- second half Oct. 1 and 8,...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
LE 344 Notes- second half Oct. 1 and 8, 2008 - Adam Smith (1723-1790) o Productive labor is that which produces tangible objects with the help of manufactured goods Entire service sector = unproductive People should spend $ on goods, not services or conspicuous consumption o Theory of Value = All goods have 2 kinds of Value (not always equal) Use Value Smith can’t explain it, so he ignores it o Use=Exchange for him Exchange Value Value= Natural Price o NP= determined by cost of production if producer is just able to cover costs demand has no effect on price Market Price determined by supply and demand o 3 classes of people Workers, paid with wages Long-run equilibrium wage= subsistence= income where couples marry and keep population constant Short-run wage determined by supply and demand Demand for labor determined by Wages Fund= total amount of $ capitalists have to pay workers= F Supply determined by size of labor force= L o Wage = F/L o F ↑ (F/L) ↑ W(now) > W (subsistence) population ↑ L ↑ (F/L) ↓ until W= subsistence Demand is moving out faster than supply because Wages Fund is growing, so in a growing economy it’s possible for wages to increase in long-run Richest country is that which grows fastest Compensating Wage Differentials o Agreeableness of work o Level of training required o Irregularity of employment o Amount of trust required o Probability of success in job o the more unattractive a job, the more it pays Capitalists, paid with profit
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
No long-run equilibrium, but over time profit ↓ because rational people will do most profitable venture first diminishing returns o Try to prevent this with colonization, but won’t work forever Interest Rate is good proxy for profit rate Landlords, paid with rent Revenue-profit = rent In a growing economy, rent will increase Landowners are conspicuous consumers, that’s bad! o Theory of Distribution = wages constant, profits ↓, rents ↑ in a growing economy o Law of the Market Against Mercantilism Economic Freedom over government regulation Peace, low taxes, good justice system Self-interest motivates all Guides people to do whatever society is willing to pay for so it propels society towards greater wealth “the natural resolve of a large number of people competing in self-interest prefect competition the right balance for society as a whole” Keynes says laissez-faire is just a belief , not law o Division of Labor Main cause of growth during Industrial Revolution is increasing productivity, caused by division of labor = Specialization Across countries Producing commodity within firm o Production of pins in 18 different steps 1 person could make 20 pins/day 10 people can make 48,000 pins/day o Increases dexterity of worker o Stimulates technological innovation b/c workers become very familiar with 1 machine
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 19

Notes_StudyGuide - LE 344 Notes- second half Oct. 1 and 8,...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online