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THE INDUSTRIAL REVOLUTION AND CLASSICAL ECONOMICS ADAM SMITH AND THE CLASSICAL SCHOOL

THE INDUSTRIAL REVOLUTION AND CLASSICAL ECONOMICS ADAM SMITH AND THE CLASSICAL SCHOOL DAVID RICARDO & THE THEORY OF COMPARATIVE ADVANTAGE THOMAS ROBERT MALTHUS & THE PRINCIPLE OF POPULATION MARGINALIST SCHOOL THE MARXIST ECONOMICS .

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THE INDUSTRIAL REVOLUTION AND CLASSICAL ECONOMICS ADAM SMITH AND THE CLASSICAL SCHOOL

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  1. THE INDUSTRIAL REVOLUTION AND CLASSICAL ECONOMICS • ADAM SMITH AND THE CLASSICAL SCHOOL • DAVID RICARDO & THE THEORY OF COMPARATIVE ADVANTAGE • THOMAS ROBERT MALTHUS & THE PRINCIPLE OF POPULATION • MARGINALIST SCHOOL • THE MARXIST ECONOMICS

  2. SELF-INTEREST OF MAN IS CONSTRAINED BY THE COMMON GOOD (MORALITY)

  3. WHICH IS MORE IMPORTANT? LABOR, CAPITAL, OR LAND? CREATIVITY & PRODUCTIVITY OF THE MIND

  4. PHYSIOCRATS (LAND) VS MORALISTS (WORKERS) –ADAM SMITH

  5. INCREASE IN WAGES = INCREASE IN PRODUCTIVITY OF WORKERS

  6. CURE TO PRODUCT SHORTAGE? INCREASE IN PRICE ZERO PROFIT? PRODUCERS EXIT THE MARKET

  7. Invisible hand = efficient allocation of resources through the price mechanism

  8. ADAM SMITH

  9. ADAM SMITH & THE CLASSICAL SCHOOL ↑production Division of labor Self-interest: constrained by morality, markets, and government ↑ wage = ↑production Product shortage ↑price ↑profit ↑production ↓product shortage ↑producers = competition ↓price ↓profit ↓producers

  10. INCREASE IN PRODUCTIVITY = SPECIALIZATION OF PRODUCTS = INCREASE IN PROFIT = TRADE (OPPORTUNITY COST IS ELIMINATED)

  11. COST OF GIVING UP AN ALTERNATIVE SELECTING THE BEST CHOICE MEANS OTHER OPTIONS ARE FOREGONE “TO GIVE UP SOMETHING IN ORDER TO GET ANOTHER (TRADE-OFF)”

  12. Point in which the economy is most efficiently producing its goods and services

  13. DAVID RICARDO

  14. GEOMETRIC RATE: 2,4,6,8 GEOMETRIC RATE: 2,4,6,8 ARITHMETIC RATE: 1,2,3,4

  15. LIMITED RESOURCES INCREASE IN NUMBER OF CONSUMERS

  16. POTENTIAL RETURNS JUSTIFY THE INVESTMENT (TIME, MONEY, ENERGY)?

  17. IF ONE FACTOR OF PRODUCTION IS INCREASED WHILE OTHER FACTORS ARE THE SAME (HELD CONSTANT) Law of Diminishing Returns OUTPUT OF PRODUCTION = DECREASES INPUT OF PRODUCTION (FACTORS OF PRODUCTION) = INCREASES

  18. MARKET’S EFFICIENCY = ALLOCATION OF RESOURCES SOLUTION? INTERVENTION OF STATE MARKET’S DEFICIENCY = DISTRIBUTION OF INCOME

  19. MARGINALISTS PRICES ARE DETERMINED BY THE COST OF PRODUCTION TO EXPLAIN THE DISCREPANCY IN THE VALUE OF GOODS AND SERVICES BY REFERENCE TO THEIR UTILITY PRICES ARE DETERMINED BY THE LEVEL OF CONSUMER SATISFACTION

  20. PRICE INCREASES = HOW THE COMMODITY WAS PRODUCED AND WILL BE USED (SATISFACTION)

  21. MARGINAL COSTS: additional cost to you from the costs you have already incurred. MISCELLANEAOUS SUNK COSTS: costs that have already been incurred and cannot be recovered. TUITION

  22. Man → World → School → Work → Death → ? → MARX → Loss of Meaning → ↑Meaning in life: free time Framework: loss & gain State → → → Businessmen Recovery? → Capitalist → → Exploitation/ Suffering → Workers → Class Structure Thesis: Bourgeois (Capitalist) Antithesis: revolution Parts: Replaceable Alienation/ separation → Synthesis: Communist Society → → Worker to the product/ activities No Private Ownership Religion: Opium SOCIALISM: no private individual would own the “means of production” but the community as a whole Wealth and power will be equally shared by all

  23. NEO-CLASSICAL ECONOMICS • ALFRED MARSHALL • INSTITUTIONALISTS • KEYNESIAN ECONOMICS (JOHN MAYNARD KEYNES)

  24. DETERMINANTS OF PRICE & QUANTITY TO SYSTEMATIZE SUPPLY & DEMAND MARKET EQUILIBRIUM ALLOCATION OF OUTPUT & INCOME

  25. SPECIALIZATION: MICROECONOMICS Study of individual choice and firms and builds up from there to an analysis of the whole economy Pricing policies of firms Households’ decisions on what to buy FROM PARTS TO WHOLE WHOLE TO PARTS: MACROECONOMICS INFLATION, UNEMPLOYMENT, ECONOMIC GROWTH

  26. PRICE: DETERMINED BY SUPPLY AND DEMAND PRICE ELASTICITY OF DEMAND: BUYERS’ SENSITIVITY TO PRICE

  27. CONSUMER SURPLUS: consumer is willing to pay more for a given product than the current market price. difference between the maximum price a consumer is willing to pay and the actual price he do pays consumer satisfaction in terms of utility.

  28. BUDGET: P 1500 CONSUMER SURPLUS? P 400 P 800

  29. P28,000 P38,000 P12,000

  30. Consumer surplus. Imagine you are sitting at home and decide that you are going to buy a new computer. You then decide that for the features you need you are willing to spend up to P50,000.00; that is you have set yourself a budget of p50,00.00. So the next day you go down to the computer store and find a computer with all the features you wanted for p40,000.00. This meant you spent P10,000 less than your budget. • What is the consumer surplus here? • That 10,o00 is your consumer surplus. Consumer surplus is the difference between what you are willing to pay and what you actually pay.

  31. the difference between the amount that a producer receives from the sale of a good and the lowest amount that producer is willing to accept for that good. As the price rises, there is a great incentive to supply

  32. PM: MINIMUM PRICE THE PRODUCER IS WILLING TO SUPPLY

  33. 3 PERIODS OF SUPPLY & DEMAND • MARKET PERIOD • SHORT PERIOD • LONG PERIOD

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