2. Selected Principles of
Economics
1. The satisfaction of human wants always requires
effort. Everything must be worked for.
2. Because people have more wants than they can
satisfy, they must choose which they want to satisfy
3. When certain goods are very scarce or useful they
become more valuable in relation to other goods
4. Every society is limited by nature in its capacity to
produce goods
5. To produce goods, it is necessary to combine the
four factors of production( natural resources, labor,
capital, and entrepreneurship
3. Selected Principles of
Economics
6. Prosperous Individuals and societies produce goods
(work) as efficiently as possible.
7. To acquire capital, or tools of production, individuals
and societies must save, postpone consumption of others
goods.
8. An increase in capital efficiency results in increased
production.
9. Division of labor and specialization usually result in
increased production.
10. Economies that practice the effective division of labor
require some form of money to make the exchange of
goods easier.
5. Answer
Law passed by a government is a written statute
which is enforced by penalizing those who ignore or
defy it. An economic law is a general principle that
explains the relationship between an action and its
result.
6. Think
What do we mean when we say that “every society is
limited by nature” in its capacity to produce goods”?
(Think of some goods that cannot very well be
produced in your state or region because of the
limitations of nature.)
7. Answer
Each state or region is physically incapable of
producing some goods…example, mangos do not
grow very well in Northern California but they grow
extremely well in Southern Florida.
8. Early Economic History
Mercantilism: From early 1600s until close of 1800s
principal states of Europe followed economic policies
called Mercantilism
Aim: build the state’s treasury
Theory: Rich nation could equip large armies and be
a powerful force.
9. Concerns of Mercantilism
Trade balance: what is balance of imports/exports
• They wanted to export more than they import
• Discouraged competition for imports by imposing high
tariffs
• Advocated imperialism, the establishment of colonies
and extensive territories created to benefit their
mother countries, example: America
10. Physiocrats
Merchants, financiers, & scholars in France who
began to voice criticism of the mercantile system in
the 18th century
Called themselves the Economists & said
mercantilism was based on false principles
They favored a “natural” economy..one without a lot
of governmental influence.
Their ideas began beginning of classical economics
and free market system
11. Main Differences Between
Mercantilists & Physiocrats
Mercantilist Physiocrats
Nations wealth determined by Nations real wealth derived from
store of precious metals (gold & land & natural resources
silver) Free trade should be
Importation of foreign goods
encouraged among nations
should be limited through
restrictions/high tariffs through the absence of
Government needed to control excessive laws & taxes
population patterns by dictating Government should allow
where people can live and people to make own choices
where they may work in order to Because free labor is more
ensure productivity productive
12. Main Differences Between
Mercantilists & Physiocrats
Mercantilist Physiocrats
Industries need governmental Industries flourish best when
regulation, special privileges, allowed to make their own
and protection in order to choices free of government
ensure their survival. interference.
14. Answer
A. A guy who voted for President Obama
B. A person who made up the regulations about
beef inspection
C. The founder of modern economics
D. My Aunt May’s new boyfriend
17. Answer
American colonialist were hampered by the
government regulations to sell their goods in Britain.
It impacted their ability to sell their goods at good
prices to countries like France and Spain. Likewise
they had to pay the high prices the British insisted on
for their goods since they were not able to bargain
with other countries.
18. Think
Do you think physiocrats are right about their free
labor being more productive than slaves, prisoners or
serfs? Why? Why Not?
19. Answer
Free Labor is More Productive for a Variety of
Reasons
1. Free Labor motivated by prospect of keeping their
earnings
2. Free laborers more interested in promoting general
welfare of their country.
3. Free Laborers generally have stronger family
structure which gives more incentive to work hard for
dependents
4. Countries with slave labor notoriously inefficient at
producing quality goods.
20. Increasing Wealth: Some
Things People Have Tried
1. Produce more goods from existing resources.
Example: Add another shift to an assembly line.
2. Increase the amount of resources available for the
production of goods. Example: scarcity of copper
reduced if unknown source discovered
3. Find new resources to satisfy existing wants.
Example: Invention of plastic to take the place of
some metals.
4. Reduce people’s wants. Example: wartime
rationing of food.
21. Increasing Wealth: Some
Things People Have Tried
6. Redistribute the goods already being produced.
Example: Socialist and Communist governments use
this method by taking away goods from rich property-
owning people and giving them to the poor and
property-less.
22. All have been only partially
successful
True Source of Prosperity: Diligent work directed by
ingenious intelligence allowed to develop under
conditions of freedom.
25. Mercantilism
A prominent European economic system from the 16 th
through the 18th centuries which aimed to accumulate
stockpiles of gold and silver
26. Trade Balance
The difference in value of the goods that a country
sells abroad compared to those it purchases from
other countries
30. Laissez-faire
A French phrase meaning “let things alone” used to
describe an economic system in which a nation’s
economy is not stifled by governmental regulations
31. Classical Economics
The theories developed by economists of the 19 th and
early 20th centuries stating that the free market system
facilitates the best possible balance between supply
and demand
