Question

Explain no fewer than 3 unique economic ideas Adam Smith introduced in The Wealth of Nations.

Answer 1

Theoretically, market without Govt. can
produce both efficient and inefficient
result depending on whether you are
assuming presence of externalities or not.
Smith put his argument in the context of
the economic environment of the
eighteenth century.
Smith was not an abstract theorist but a
policy formulator.

There exists a natural order of society.
The major assumption of Adam Smith
was that competitive markets exist and
within these markets factors move freely.
Moreover, natural process at work in the
economy can resolve conflicts more
effectively than any arrangements devised
by human beings.

Differentiated between two types of
prices: Short term market price and long
run natural price.
Movement of factors will ensure that
natural price will prevail
With competitive markets and an absence
of government regulation, the resulting
natural prices bring about an optimum
allocation of resources in that consumers
receive the goods they want at the lowest
possible cost and maximum rates of
growth are ensured.

He strongly advocated against
Mercantilist policy of government
intervention in names of social good.
But one needs to appreciate the
qualifications attached by Smith with his
argument for free market. Even Smith
realized that this argument does not
apply in case of sectors such as education.

Wealth of nation depends on capital
accumulation because this is what
determines the extent of the division of
labor and the proportion of labor engaged
in productive labor. This in turn
determines overall economic development.
Individual self-interest coupled with
accumulation of capital leads to an
optimum allocation of labor.

Because laborers get too
little money to save and invest. Land
owning class waste money on conspicuous
consumption.
An unequal distribution in favor of the
capitalists is of great social importance. A key to economic development .

According to Smith, wealth of nation
depends on productivity of labor and ratio
of productive and unproductive labor.
Productivity of labor depends on the
division of labor which in turn depends on
the extent of market and capital
accumulation.