Directions: answer all questions completely.
1) Describe a Traditional economy?
2) How are decisions made in a market economy?
3) Of the 4 economic systems, which do you think America is right now? Why?
4) Using the chart - What is economic efficiency?
Adam Smith and a Market System
Adam Smith, was a famous moral philosopher and economist from Scotland. He coined the phrase "invisible
hand" in his The Wealth of Nations. When it comes to setting economic policies, how much a government
should intervene has always been a hot topic. One school of thought believes
that the intervention should be little or none at all, for there is an "invisible
hand" guiding the society to a greater prosperity. The scholars who share this
view know very well that every individual always tends to watch out for his own
interests. He does not necessarily care about doing what is good for the public.
Nonetheless, as he -- like everybody else around him -- attempts to gain more
profits, he inadvertently sets the "invisible hand" into action and ends up making
the society more effectual. Henceforth, under a free market, both the individual
and the overall economy become prosperous. The concept of an "invisible hand"
was a hit among scholars right from the beginning. Over time, its popularity has
expanded beyond the academic circle.
Adam Smith was born in 1723. At the age of fifteen, he entered the University
of Glasgow to study moral philosophy. After spending two years there, he won a
prestigious scholarship (the Snell Exhibition) and moved to study at Oxford instead. By 1751, Adam Smith was
once again back at the University of Glasgow. This time around, however, he was no longer a pupil, but a
professor. He became the Chair of Moral Philosophy in 1752 and gave lectures covering various topics such as
ethics and political economy. One of his admirers was the Duke of Buccleuch, who offered him the position of
tutor for his stepson and the opportunity to accompany the young heir on his "Grand Tour" of continental
Europe. Adam Smith agreed and subsequently resigned from the University of Glasgow. For the next two years
or so, he and the young Duke of Buccleuch traveled around, spending most of their time in France.
Apart from giving his charge private lessons, Adam Smith also used the opportunity to befriend some of the
most well-known intellectual figures of his time. The things he had observed in France and the discussions he
had held with his new friends would later prove to be extremely helpful as he set out to write The Wealth of
Nations. After the "Grand Tour" was over, Adam Smith returned to Scotland. He spent nearly a decade on his
next masterpiece, The Wealth of Nations. The book was published in 1776 and was very well-received. In it he
describes how a Market system can flourish and called for economic laissez faire- restricted government
involvement. The catchy metaphor of an "invisible hand" was born.
Adam Smith never married. He preferred living a quiet life with his mother. Apart from being a professor at
the University of Glasgow and later a tutor for the young Duke of Buccleuch, he also played a critical role
during an intellectual movement known as the Scottish Enlightenment. Throughout his life, he held many
positions. Adam Smith died on July 17, 1790.
5) In which book did Adam Smith mention the concept of an "invisible hand"?
a) Essays on Philosophical Subjects
b) Lectures on Jurisprudence
c) The Theory of Moral Sentiments
d) The Wealth of Nations
6) Of what kind of market was Adam Smith a big proponent?
a) Cartel
b) Oligopoly
c) Free market
d) Monopoly
7) According to Adam Smith, what would guide the society to a greater prosperity?
a) A person's self-interest
b) Sympathy
c) A monarchy
d) A proactive government
8)
9)
10)