Question

1. What was the European economy like in the late Middle Ages?

2. What were the characteristics of mercantilism? Who had the most power under a mercantilist system?

3. Why did economies change during the Industrial Revolution?

4. Explain the basic principles of capitalism, as outlined by Adam Smith in the late 18th century.

5. How did capitalism affect the lives of the middle class and the lower classes?

6. Why do you think economies might be more efficient under capitalism than under mercantilism?

7. According to Adam Smith's The Wealth of Nations, how can self-interest help the public good?

8. Discuss some of the drawbacks of capitalism, or the free enterprise system.

Answer 1

1) The Middle Ages were a time of dramatic economic change in Europe. Between the ninth and the fourteenth centuries, a primarily agrarian economy based on the values of land and labor grew into a commercial one based on the exchange of currency.

2) Mercantilism was based on the idea that a nation's wealth and power were best served by increasing exports and reducing imports. It's characterized by the belief that global wealth was static and that a nation's economic health relied heavily on its supply of capital.

3) The Industrial Revolution transformed economies that had been based on agriculture and handicrafts into economies based on large-scale industry, mechanized manufacturing, and the factory system. New machines, new power sources, and new ways of organizing work made existing industries more productive and efficient.

4) Capitalism is often thought of as an economic system in which private actors own and control property in accord with their interests, and demand and supply freely set prices in markets in a way that can serve the best interests of society. The essential feature of capitalism is the motive to make a profit.

5) It gave them control over the working lives of the propertyless masses, who survive by selling their labor power to capitalists for a wage. The money earned through wages is taken to the market and used to purchase life's necessities.

6) Mercantilism isn't about making the most efficient economy; it's about trying to make a country wealthy by accumulating gold and silver. However, capitalism is about businesses trying to earn as much money as possible, and the more successfully they do that, the more efficient the economy will be.

7) Adam Smith's self-interest economic theory proposes that capitalism fueled by self-interest is ultimately the best way to a thriving economy. Because of human desire for money, success, or fame, they will be motivated to improve their quality of work, products, and compete with others.

8) Uneven economic growth: sometimes growth is fast and other times it is slow. Growing gaps between rich and poor: rich seem to get richer and poor seem to get poorer. Large “supply-side” tendencies: firms will combine and reduce competition.


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