Economics Archives

Is Market Self-Regulation a Thing? Adam Smith Thinks So

How are prices set? What role does competition play in an economy? Do markets actually regulate themselves if they’re free? In The Wealth of Nations, Adam Smith argues that free markets are the most efficient way of directing the production and exchange of goods to grow a nation’s wealth (and thereby enable the specialization of labor). He explains the mutually-beneficial interplay of markets and prices. Read more to understand Smith’s argument that market self-regulation really works.

The Cost of Capital: 3 Factors That Influence Capital Lending

How is the cost of capital determined? What impacts capital lending markets? One of a business’s costs is its capital, which it usually borrows from capital lenders. This lending happens in a competitive market. In The Wealth of Nations, Adam Smith discusses three factors that influence that market: risk to the investor, profit on capital, and changes in supply chains. Continue reading to learn how the markets determine the cost of capital, according to Smith.

2 Factors That Influence the Cost of Labor (Adam Smith)

How are wages set? Why does geography affect the cost of labor more than the cost of goods? The natural price of a good changes in accordance with changes in any of the costs of production. In The Wealth of Nations, Adam Smith identifies labor as one of these costs. He discusses how supply and demand, as well as the living conditions of workers, influence the cost of labor. Continue reading to understand how the cost of labor operates in an economy.

What Is Natural Price? Adam Smith Explains the 3 Factors

What does it mean to get a “good deal” on a product? What’s the natural price of a good? When supply and demand are in equilibrium, goods will be sold for their natural price. Adam Smith explains that the natural price is the cost of bringing a good to market. He discusses this concept in his classic work The Wealth of Nations. Read more to understand natural price and the three primary costs that determine it.

Adam Smith: Capital Grows a Nation’s Wealth in These 2 Ways

What role does self-interest play in capital lending? How is it good for the economy as a whole? According to Adam Smith, capital grows a nation’s wealth. He identifies two main reasons. First, the self-interest of the capital lender encourages them to invest in productive labor. Second, the self-interest of the lender guides them to invest in less-developed portions of the economy and help them develop. Keep reading to learn how lending capital for profit plays an essential role in growing the wealth of nations.

Why Are Prices So High Right Now & Will Inflation Go Down?

Why are prices so high right now? When will inflation go down? Will prices go back to normal anytime soon? Inflation, which took off in 2021, has surprised economists with its durability, remaining at levels not seen in 40 years. Recently, though, it’s started to decrease—however, prices for everything are so high that consumers are left wondering if they’ll ever return to normal. Read on to learn why prices are so high right now and what economists predict will happen in the coming year.

Adam Smith’s Theory of International Trade: It’s About Freedom

Do embargoes lead to smuggling? Does trade benefit both countries? Is a trade deficit a bad thing? Adam Smith disagrees with restricting international trade for three reasons. He argues that it incentivizes smuggling, redirects domestic capital towards inefficient industries, and prevents countries from entering into mutually beneficial trade relationships. Continue reading for an overview of Adam Smith’s theory of international trade.

Critiquing Regulated Markets: Adam Smith Calls Out 2 Policies

What happens when the government meddles with the economy? What do regulated markets produce (or fail to produce)? The development of a nation’s wealth depends on competitive markets in which participants are free to act in their own self-interest. In The Wealth of Nations, Adam Smith identifies government policies that interfere with this process and slow down economic growth. We’ll explore two regulated market policies that Smith critiques: restricting international trade and subsidizing industries.

What Should the Government Spend Money On? 4 Priorities

What should the government spend money on? What should its priorities be and why? In The Wealth of Nations, Adam Smith discusses what he thinks are the best ways to grow a nation’s economy. Since growth is the goal, Smith opposes most public spending. He outlines two criteria for what he considers proper government expenditures. Only four things meet these criteria. Let’s take a look at what makes the cut and why.

Adam Smith’s Principles of Taxation: Tackling a Necessary Evil

How is ethical taxation achieved? How can taxes be less disruptive to the economy? In The Wealth of Nations, Adam Smith shares his general principles for how taxes ought to be collected and assessed. He also analyzes specific forms of taxation in light of his principles and explains how each tax is problematic in its own way. Let’s review Adam Smith’s principles of taxation and his analysis of three common tax policies.