Adam Smith: The Wealth of Nations. A Book About the Market Economy

I. What is the Free Enterprise System? A. It is the U.S. Economic System. B. Individuals have the right to own private property and to make individual choices about. . . . 1. How to use their property 2. How they are going to make money. C. Competition between business and individuals is allowed without government interference. D. Two groups that make decisions affecting the Free Enterprise System: 1. Consumers – people who buy goods or services. 2. Producer -A person or company that provides goods or services.

II. Adam Smith In his book, The Wealth of Nations, Smith explains how people that make reasoned decisions about what to buy and sell drive the economy. The book was a manifesto against mercantilism. The Invisible Hand: Was Smith’s theory that the free market should not be regulated by the government. ex. If there is a shortage of a good, the prices will rise , and others will enter the market which will cure the shortage and lower the price.

ABOVE: Adam Smith admiring Adam Smith! RIGHT: The Wealth of Nations also described a free market principle called the invisible hand. Above – Smith’s book explained how the division of labor would be helpful for factories.

III. Private Property Rights We have freedom to own and use, or do whatever we want to with our own property. This gives incentive to work, save & invest. Because of this freedom we take better care of things if we actually own them so they tend to last longer. Competition is the struggle between buyers and sellers to get the best product at the lowest prices. A. Between sellers it keeps the cost of production low and the quality of the goods high. B. Competition between buyers happens by finding the best products at the lowest prices.

Supply and Demand A. Demand: the amount of a good or a service that a consumer is willing and able to buy at various periods. B. When prices go up, demand drops. When demand prices go down, demand increases. C. Supply is the quantity of goods and services that produces are willing to offer at various time periods. The law of supply states that producers supply more goods and services when they can sell them at higher prices. E. Competition is the economic rivalry among businesses selling similar products.