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Paf 201 Notes - March 6, 2015

Paf 201 Notes_ March 6, 2015

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Jonas Ebora
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42 views2 pages

Paf 201 Notes - March 6, 2015

Paf 201 Notes_ March 6, 2015

Uploaded by

Jonas Ebora
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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March 6, 2015

Government intervention is rooted in the mercantilism

Adam smith 1723-1790

Free market capitalism


Self-interest=societal good
Division of labor/specialization
o In labor, there is particular work
o Finding your niche
o Trend today: special forces mentality (sniper but know other things)
o Negative side of specialization: it is a limiting factor
o Application of this principle: business and international trade
o Specialization principle in trade: we produce what is our advantage
Absolute advantage
o Focus on efficiency
o There is limited resources
o It would be beneficial to a country in concentrating where they are
good at
o Specialize on certain crops and trade
o In trade: we import what we are not efficient

Philippines
China

Corn per he
100 sacks
70 sacks

Sugarcane per he
50 sacks
120 sacks

David Ricardo 1772-1823

Comparative advantage: promotes trade but a modification to absolute


advantage
Each country specialized in producing goods for which it is best suited and
trades its surplus, then all would benefit

Philippines
China

Corn
90
100

Rice
40
160

Consider the margin of difference in efficiency


The margin in corn is little compared to the rice of china. So china better
concentrate on the rice production. China benefited in importing corn in the
Philippines though there is little margin in efficiency.
Eventually, the efficiency of Philippines in corn production may be at par or
even surpass the efficiency of china in corn production

Thomas Malthus 1766-1834

The persistent tendency fir the rate of population growth to outstrip the rate
of growth in food production
Other scholars cited things that Malthus failed to consider
o Technology

Jean-Baptiste Say 1767-1832

Says law: supply creates its own demand


The production of goods/services can be expected to generate the national
income that is necessary to purchase those commodities
It is a cycle
A sample is the iPad: there is no demand for tablets back then but they
created the demand by producing it.
Values of goods and services
o Supply conditions are crucial in shaping exchange values
Water and gold: supply conditions
o Labour is the principal cost that determines the value commodities
o Emphasis on the natural price of commodities
Distribution of income/wealth
o Capitalist: profit
Reinvesting the profit as a capital to make the economic pie
grow
o Landowners: rent
o Workers: wages
Economic growth
o Division of labor
o Expansion of trade
o Accumulation of capital

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