Adam Smith and His Invisible Hand of Capitalism

КОНТРОЛЬНАЯ РАБОТА

(ECONOMICS/ MARKETING/ ACCOUNTANCY)

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Market Economies

The framework of a market or capitalist system contains six essential features: private property, freedom of choice and enterprise, self-interest, competition, the price system, the role for government.

Private property.

The institution of private property is a major feature of capitalism. It means that individuals have the right to own, control and dispose of land, buildings, machinery, and other natural and man-made resources.

Freedom of choice and enterprise.

Freedom of enterprise means that individuals are free to buy and hire economic resources, to organize these resources for production, and to sell their products in the markets of their own choice. Freedom of choice means that owners of land and capital may use these resources as they see fit. It also means that workers are free to enter (and leave) any occupations for which they are qualified. Finally it means that consumers are free to spend their incomes in any way they wish.

Self-interest.

Each unit in the economy attempts to do what is best for itself. Firms will act in ways which, they believe, will lead to maximum profits (or minimum losses). Owners of land and capital will employ these assets so as to obtain the highest possible rewards. Workers will tend to move to those occupations and locations which offer the highest wages. Consumers will spend their incomes on those things which yield the maximum satisfaction.

Competition.

In theory competition is the regulatory mechanism of capitalism. On the one hand, it protects the customers – they have the right of choice and they benefit from the fact that competition keeps prices close to costs; on the other hand, it makes producers and suppliers of scarce resources utilize them economically, using most sophisticated technologies.

Markets and Prices.

The price system is an elaborate system of communications in which innumerable free choices are aggregated and balanced against each other. The decisions of producers determine the supply of a commodity; the decisions of buyers determine the price. Changes in demand and supply cause changes in market prices and it is these movements in market prices, which bring about the changes in the ways in which society uses its economic resources.

The role for government.

Freedom of enterprise is not total in the market economy. Businesses are subject to laws and government regulations.

Economic environment is determined by the economic policies of the government, fiscal and monetary policies being the major f

Задание 2. Выберите правильный вариант, запишите предложение.

1. I am a student of (economy, economics) now.

2. At school I didn’t study the (economy, economics) of Great Britain.

3. I hope he’ll make a good (economist, economy).

4. There are many (economic, economical) problems in the world.

5. This car is very (economic, economical).

6. I try to spend money and time (economical, economically).

7. This car (economize, economizes) fuel.

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Задание 3. Прочтите текст и ответьте на вопросы.

Adam Smith and His Invisible Hand of Capitalism

Adam Smith, a Scot and a philosopher who lived from 1723 to 1790, is considered the founder of modern economics. In Smith's time, philosophy was an all-encompassing study of human society in addition to an inquiry into the nature and meaning of existence. Deep examination of the world of business affairs led Smith to the conclusion that collectively the individuals in society, each acting in his or her own self-interest, manage to produce and purchase the goods and services that they as a society require. He called the mechanism by which this self-regulation occurs “the invisible hand,” in his groundbreaking book, The Wealth of Nations, published in 1776.

While Smith couldn't prove the existence of this “hand” (it was, after all, invisible) he presented many examples of its working in society. Essentially, the butcher, the baker, and the candlestick maker individually go about their business. Each produces the amount of meat, bread, and candlesticks he judges to be correct. Each buys the amount of meat, bread, and candlesticks that his household needs. And all of this happens without their consulting one another or without all the king's men telling them how much to produce. In other words, it's the free market economy in action.

In making this discovery, Smith founded what is known as classical economics. The key doctrine of classical economics is that a laissez-faire attitude by government toward the marketplace will allow the “invisible hand” to guide everyone in their economic activities, create the greatest good for the greatest number of people, and generate economic growth. Smith also delved into the dynamics of the labor market, wealth accumulation, and productivity growth. His work gave generations of economists plenty to think about and expand upon.

1. Who is Adam Smith?

2. What conclusion made Smith after deep examination of the society?

3. What is “the invisible hand” according to Adam Smith?

4. How does “the invisible hand” work in the society?

5. What is a key doctrine of the classical economics?