Economic Thought Unit 2 Discussion

1) Contrast the market system with a command system in terms of coordination of productive resources to achieve the appropriate allocation of resources. 

            In a market economy the means of production are privately owned by free individuals. These economic actors participate in the market voluntarily under no coercion, and are free to enter and exit. Productive resources in a market economy are allocated freely in accordance with the laws of supply and demand. Productive resources are free to enter and exit as well.

            On the other hand in the command, or planned economy, the means of production are owned by the state or ruling authority. All economic decisions are centralized and determined by the planning authority. Productive resources are ordered what to or what not to produce. All resources are allocated according to the orders of the central planning authority. Real world examples of this are Cuba and North Korea. This is an incredibly inefficient system because it artificially attempts to override the laws of supply and demand.

2) How did Smith differ from Quesnay in terms of the creation of wealth?  

            Smith differed from Quesnay in what sources of production led to the creation of wealth. For Quesnay, agriculture was the only source of net product that would lead to the wealth of a nation. He viewed manufacturing and commerce as a wash because he felt the outputs only equaled the outputs, thus producing no net. On the other hand Smith rejected this idea believing that agriculture, manufacturing, commerce, and capital all were sources of wealth. 

3)  What is the meaning of laissez-faire, and upon what foundation does Smith base his policy vision?  

            Laissez-faire, which means “let allow to do” in French, is a market system that features minimal to no intervention from government in trade and exchange. .