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Exam questions plus answers History of Economics
- Instelling
- Radboud Universiteit Nijmegen (RU)
All possible exam questions of History of economics comprehensive answers! overall language: English. sometimes Dutch words used.
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PDF Exam questions (beantwoord in werkgroepen)Compare the value theories and policy prescriptions of mercantilists and physiocrats.
Mercantilists thinks that an economy needs a greater export than import. A positive trade balance
leads to welfare. According to the mercantilists, trade is a zero-sum-game. You can’t benefit from
trade. That is why export is very important. Wages should be low, because it lowers export prices and
thus the increase of gold and silver. Money was source of value.
Mercantilists
value comes from gold and silver. That is the source of all value. How larger the pile of gold and
silver, the richer a country is = wealth of nations. A government should have a policy where it
intervenes much. So that there is low wages and trade surplus, minimize the consumption (low
wages).
Policy so that mercantilist can maximize gold and silver
- Limited amount of gold and silver. Zero-sum game. You can’t create gold and silver. You
can get more by taking it from others. Export is an example to get more gold and silver.
- It is not always bad to import things, raw materials are good to import. Because than you can
export products you make with the raw materials.
- Keep wages and prices low is good for a trade surplus because you are more attractive at the
export market with low prices. And it is important that people work as much as they can.
Because than they can produce more and export more, that is good say mercantilist. They
can become rich by increases the amount of gold and silver by exporting more.
Physiocrats thinks that an economy benefits from no government intervention. They need to follow
the laissez faire idea. Unlike the mercantilist they focus not on money but on economic development.
Labor was source of value.
physiocrats value comes from land, that is the source of all value. Wealth of nations is
determined by the output of agriculture/land. A government should have a policy where it has a
taxation on land. Because that is the only way you can tax. If you tax a person who works on land, it
is automatically a tax on land. Instead of taxing intermediates, you can tax the fundamentals (land).
Policy so that physiocrats can maximize output of products
- Free internal movement of goods. And less intervening of government. Because by the
mercantilists they had so many policy’s, they found out that the government has an
inefficient outcome on the market.
- Isaac newton everything is ordered by natural order. Everything works most efficient if
unstructured. As a result, the economy works best. Enlightment lost of gravity.
- If you tax anything else than land, you create inefficiency.
- Lassez faire free trade
,Explain the idea of laissez-faire and why physiocrats supported this idea.
Laissez-faire means that the business in a country will be better when there is less government
involved in the economy. Also in the whole society there is no or less need for government
intervention. Mercanitlists said yes to government intervention, but physiocrats saw that without
government, there was more efficiency in the market. The physiocrats supported this idea because
they think that free economic competitions leads to freedom. It would also lead to an increase in
agricultural production, which would also leads to economic growth/ wealth of nation.
Describe the major contributions and shortcomings of the physiocrats doctrine.
A major shortcoming of the idea of the physiocrats is that it don’t protect the weakest people in the
society. It’s a type of capitalism. John Keynes thinks that it need to be decided by topic whether or
not there is a need for government intervention.
Major contributions:
- Natural order everything works most efficient if it is unstructured.
- Laissez-faire free trade and no government intervention.
- Emphasis on agriculture because of surplus later this was not correct, it was the industry.
- Taxation on landowner only landowner produced surplus so only the landowner can be
taxed.
- Interrelatedness of the economy
- Examine society as a whole, not as a sum of the parts
- Labor was the source of value, but only agriculutural labor and not industrial labor.
Several ideas were incorrect
Explain the idea and the advantages of the division of labor. What is the role of this concept in
Smith's work? What could be the shortcoming of the division of labor, according to Smith, and the
possible remedy?
The idea of division of labor is a system in which people specialize in skills and everyone takes
advantage of it. Division of labor leads to an increase in skills and productivity. Division of labour is
necessary to grow as a country and get economies of scale.
Division of labor increases output for three reasons and some advantages:
o Each worker develops increased vaardigheid in one task, so specialisatie. You get
much better.
o Time is saved if the worker doesn’t need to switch between different kind of work/
machines.
o Machinery can be invented to increase productivity once tasks have been simplified
Division of labor/ markets and exchange holds us together.
- Division of labor everyone has their own takes. If you have one specific part of work, you
divide al the tiny steps in it. so 1 worker specializes in one part of the work.
A shortcoming of division of labor is that people lose motivation and concentration to do the job, and
make mistakes because they are bored. A possible remedy according to Smith will be education of
the workforce so that they wouldn’t get too demoralised by their job. You will be as sufficient as you
,can. But you can get bored and dull of doing every day the same. Economic part: division of labor
leads to dumbness and therefore, you want education.
What were the main elements and intuitions of the classical approach to political economy? Lecture 2
- Power of self-interest
- Harmony of the market forces: invisible hand
- Classical political economists mostly focused on production and distribution
of the national income.
- The role of specialization in fostering economic growth
o Division of labor and endogenous technical progress (Smith)
o Comparative advantage (Ricardo)
- Dynamic view of capitalism
o tendency of the profit rate to fall
smith and ricardo claimed that profit rate in long run will decrease.
Smith competition. How larger competition developing, how lower profit
rates.
Ricardo how more people are working on the market, how lower the profit rates.
Diminishing returns in agriculture. Population is growing, we need to feed all the
people. The more intensive we use our land, the less output you get from that land
o divergent views on the dynamics of productive efficiency (increasing or decreasing
returns)
Optimistic view of smith the more we produce, the lower will be our costs.
Pessimistic view of malthus/ ricardo all the products we create will be consumed
by the growing population. Care about the limiteds of land we have available for
agriculture.
• Long-term perspective
- value theory instead of price theory
- emphasis on natural prices (by exchange rates) rather than market prices (by (demand and)
supply). Horizontal supply curve.
• Focus on supply, not demand
- ‘objectivity‘ (diamond-water paradox) supply of diamond is low, so higher value.
- Say‘s law everything that is produced will be consumed automatically. Supply creates
demand.
, What, according to Smith, determines exchange value in a primitive and in an advanced economy?
Primitive society In a society in which labor was the only resource, the relative value of a good
would be determined by the amount of labor necessary to produce it. The value of any commodity to
a person who possess it, if he wishes to exchange it for other commodities, is equal to the quantity of
labor which it enables him to purchase or command.
The value in exchange = relative value is determined by the amount of labor necessary to produce it.
So how much labor do you need to produce one commodity?
o Labor is the real measure of the exchangeable value of all commodities
Advanced society in a society in which the growth of capital would invalidate a simple labor cost
theory of value. In a society where capital investments and land resources become important, goods
will normally be exchanged for other goods, for money or for labor at a figure high enough to cover
wages, rent and profit.
There is a cost of labor and cost of land, these two factors determine the exchange value. exchange
value = how much labor can we buy in exchange for this commodity?
o The real value of commodities can’t longer be measured by labor contained in them.
Demand does not influence the value of commodities, the cost of production –
wages, rent, profit – are the only determinants of value in the long run.
Explain the meaning of Smith's 'invisible hand' doctrine. Discuss the analytical and normative
significance of the ‘invisible hand’.
Smith’s invisible hand describes how supply and demand in a market cause moving prices and the
equilibrium. It is moved by unseen forces (the invisible hand). When everyone strives for their own,
the invisible hand ensures collective welfare.
Pursue own personal interest. invisible hand: competition drives down the price and profit for
each seller. Only one seller with very high profit? New competitors will join the market, supply
increases and therefore profit decreases. equilibrium.
- No government intervention in international trade. But smith saw some major functions for
the government:
o To protect society from foreign attack
o To establish the administration of justice
o To erect and maintain the public works and institutions that private entrepreneurs
cannot undertake profitably
De onzichtbare hand is het zelfregulerende effect van een markt waar iedereen slechts eigenbelang
nastreeft, maar daarmee collectief welvaart weet te creëren.
Ook Adam Smith zelf gaf al aan dat een markt snel onevenwichtig wordt doordat producenten
geneigd zijn samen te spannen, en daardoor een relatieve machtspositie verkrijgen ten opzichte van
de consument. Hierdoor wordt de vrije marktwerking snel verstoord, en aldus wordt ook het
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