Question

provide ONLY 2 statements of why the concept was important to Smith or Marx.

- The division of labour

-Surplus value

-The invisible hand

-Principle of laissez-faire

-Theory of exploitation

Answer 1

1. The division of labor: This concept is very important to undestanding of theory of Adam Smith. Smith says that it is the division of labor which helps the producers in producing efficiently. This is because when division of labor is practiced, each worker becomes specialized in the given task. Accordingly, they are able to produce more of the product in lesser time.

2. This concept was given by Marx. The concept of surplus value says that the workers are paid less as compared to the work they do. Capitalists benefit from the surplus value that the workers produce. Surplus value is the value produced over and above what is paid to the workers.

3. The invisible hand: The concept of invisible hand is important in the understanding of Adam Smith's theory. Adam Smith said that it is the invisible hand of the market which guides the economic agaents and an efficient production or consumption takes place. Invisible hand guides economic agents through price mechanism and makes sure that the markets are cleared.

4. Principle of laissez faire: This concept was important for Adam Smith. Adam Smith says that when the economy is in state of laissez faire, i.e., the economic agents are allowed to make their decisions freely without the intervention of the government, the full potential of the economy is realised.

5. Theory of exploitation: This was given by Karl Marx. Theory of exploitation says that the workers are exploited by the capitalists. Producers want to increase the share if profits and due to this the share of wages gets reduced. Capitalists extract the surplus value of the workers are rise their profits shares with it.