chapter 2

laws of economics

general rules that guide the production, distribution, and consumption of goods

mercantilism

an economic system that advocates the building up of the state’s treasury with the goal of accumulating as much wealth (gold) as possible

trade balance

the difference between the amount of goods a nation sells and the amount that it buys

1. sells

2. buys

fill in the blank

a trade balance is the difference between the amount of goods a nation _____ and the amount that it ____

tariffs

taxes governments used to discourage imported goods

imperialism

the establishment of colonies and territories for the benefit of their mother countries (ex: English empire in the 17-1800s)

physiocrats

fill in the blank

economists in the 1700s who first tried to create a science of PDC of goods

samuel du pont

published Physiocracy (“the rule of nature”)

physiocracy

fill in the blank

samuel du pont published _________ (“the rule of nature”)

• land

• natural resources

fill in the blank

physiocrats believed that a nation’s true wealth comes from _____ and ________ __________

laissez-faire

“let things alone”; the government should leave the economy to operate itself with little intervention

classical economics

a belief system that originated with physiocrats; the free-market system is the best possible system

adam smith

the founder of modern economics

adam smith

“father of modern economics”

wealth of nations

most famous economic book in history; established basic principles of modern economics (1776)

• division of labor

• specialization

what are smith’s economic principles?

division of labor

separation of complex work into individual tasks to increase productivity

specialization

allowing an individual to excel in one specific area of his field resulting in higher quality products or service

sell

fill in the blank

with the “invisible hand” of the market, the producer’s desire is to _____

buy

fill in the blank

with the “invisible hand” of the market, the consumer’s desire is to ____

1. together

2. both

fill in the blank

with the “invisible hand” of the market, the “invisible hand” brings the desires _________ and satisfies ______ of them

prosperity

general economic success; the ability to enjoy many goods and service

wealth

the value of goods and finances that a person owns

1. already existing

2. increases

3. new

4. better

5. reduce

6. redistribute

fill in the blanks

the six ways to increase wealth…

1. produce goods from _______ ______ services

2. _______ the resources used for producing goods

3. use _____ resources to satisfy wants

4. make goods _______ at satisfying wants

5. ______ people’s wants

6. _________ wealth and resources

• labor

• work

fill in the blank

the true source of wealth and prosperity is _______ or _____