division of labour pursuit of self-interest - pdst posters.pdf · pursuit of self-interest...

Pursuit of self-interest

Benefited individual

therefore society

Division of Labour

Splitting of tasks among

workers to make them

more productive.

Eg. it takes 18 different

operations to make

a pin!

Labour theory ofvalue & wealth

The value of an

item is equal to the

amount of labour

that goes into

producing it

Cannons of Taxation

Fair Tax Systemequity

economy

certainty

convenience

Invisible hand of competition

An economy will work well if the

government leaves people

alone to buy and sell freely

among themselves because an

unobservable market force

helps the demand and supply of

goods in a free market to reach

equilibrium automatically

Laissez-faire

No justification

for government

intervention

except for

defence/justice

Free Trade

With no tariffs/tax,

markets operate

effectively & trade to be

spread between nations

www.pdst.ie/sc/economics

Pursuit of self-interest

Division of Labour

Labour theory ofvalue & wealth

Cannons of Taxation

Invisible hand of competition

Laissez-faire

Free Trade


Theory of Population & Food

• Population grows

geometrically (2, 4, 8, 16, 32)

• Food grows arithmetically

(1, 2, 3, 4, 5, 6)

• If population not kept in

check famine & disease

would result

• SOL did not fall in 19th

century but his ideas were

more relevant in the

population explosion of the

20th century

Iron Law of Wages

An increase in wage above

subsistence level

= increase in population

= increase in supply of labour

= decrease in wage

Applied the Law of DiminishingReturns to Land

• Best land taken up first, then

next best, then inferior land

• At each stage the amount of

food produced is less than

before


Theory of Population & Food

Iron Law of Wages



Economic Rent

• If population increases

inferior land used

• For use of land rent was

paid

• Cost of producing on the

best land was lower

• Food produced on good

land earned a surplus over

that produced on inferior

land

• This surplus led to an

increased rent payable for

the use of good land Accepted the Subsistence Wage Theory

He agreed that an increase in wage above

subsistence level = increase in population

= decrease in wage


• Supported idea of free trade

• A country should specialise

in the production of those

goods in which it is relatively

most efficient

• And trade for the remainder

of its reqiuirements


Economic Rent

Accepted the Subsistence Wage Theory



Labour Theory

People required to

work more hours

than necessary to

generate the income

needed to pay their

wages

Profit

Labour produces a

surplus value which

was profit for

employers

Profits invested intechnology

Reduced need for

labour =

unemployment

Social Revolution

Where proletariat would take

public ownership of the

Factors of Production

Predicted

Growth of

oligopolies

Forecasted

Emergence of

trade cycles

Two tiered society =unequal distribution

of wealth

Capitalists (owners)

Proletariat (workers)


Labour Theory

ProfitProfits invested in

technology

Social Revolution

Two tiered society =unequal distribution

of wealth

)


Theory of Value

The value of an item is

determined in

• SR by utility and

demand

• LR by cost of

production

Growth of monopoliescould be prevented by

• Government regulation

• Consumer information

• More accountability

Distribution ofincome/wealth

The return to each FOP is

determined by their

marginal utility

Consumer Surplus

The difference between what a

consumer actually pays for a

good and the maximum which

he/she would have been

willing to pay rather than

going without it

Quasi Rent

Economic rent

earned by FOP

in SR when D>S

Price-elasticity of demand

Quantified buyers’

sensitivity to price

changes


Theory of Value

Growth of monopoliescould be prevented by

Distribution ofincome/wealth

Consumer Surplus

Quasi Rent

Price-elasticity of demand


If Inv<Saving =Leakage

Leads to a

decrease in

national

income &

employment

Liquidity PreferenceTheory

3 reasons (motives) for holding

wealth in the money form

Investment decisions

Depends on expectations

not rate of interest

Favored governmentintervention

• It is the job of the

government to run

the economy

• Government can use

fiscal policy (any action

taken by the government

which alters current

revenue & expenditure)

to create full

employment

• Eg. Decrease VAT to

boost spending or

increase government

spending to increase

demand and create

jobs

The Multiplier

Shows the relationship between

an initial injection into the circular

flow of income and the eventual

total increase in national income

The Paradox ofThrift

Saving too much

leads to reduced

aggregate

demand

• Transaction motive

• Precautionary

• Speculative (See chapter on capital)


If Inv<Saving =Leakage

Liquidity PreferenceTheory

Investment decisions

Favored governmentintervention

The Multiplier

The Paradox ofThrift


Monetary policy

Should be the main

instrument used by the

government to manage

the economy.

(Actions taken by thegovernment/ECB whichinfluences the moneysupply, interest rates andavailability of credit).

Reduction in inflation

Leads to increases competitiveness,

cheaper exports and job creation in

the long run. Firms keep wage

increases to a minimum to avoid

cost-push inflation.

Supply side policies

Improve market efficiency,

boost supply, reduce the

power of trade unions.

Laissez-faire

• Minimum state intervention

• De-regulation of markets

• Privatisation

Control of money supply

• Control inflation by strict control

of money supply

• Restrict loans and increase

interest rates


Monetary policy

Reduction in inflation

Laissez-faire


Supply side policies

Control of money supply

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