history of economic thought worktext

HISTORYECONOMIC THOUGHT

PANGASINAN STATE UNIVERSITYLINGAYEN CAMPUS Lingayen, Pangasinan

JAMESON N. ESTRADAPangasinan State University

WORKTEXT

OF

PREFACE

History of Economic Thought with the course code Econ 126 deals with theeconomic theories, ideologies and concepts of thinkers and economists who formulated them. It is a study of the major figures and trends in the history of economic ideas, how these ideas were formulated, utilized and transmitted, the character and scope of economic ideas in their relationship to other areas of human experience and study. To ensure the course objectives would be achieved, a need for a teaching resource material is necessary. Thus, this worktext has been prepared.

This worktext is intended for use by students of AB Economics program taking up the subject Econ 126 with the objective of providing them with a comprehensive study about the history of economic thought to develop an understanding, analysis and appreciation on the evolution of economic theories and ideas of different economic thinkers from the ancient time to the present day. Likewise, it has been designed as an instrument for learning development and assessment, providing students with a practical approach to applying the knowledge learned in the lectures. Each worktext covers exercises that is built upon the lessons of the following chapters

● Introduction to History of Economic Thought● Early Economic Thought● Mercantilism and Physiocracy● Classical Economic Thought● Marxian and Socialist Economic Thought● Neoclassical Economic Thought● Institutional Economic Thought● Austrian School of Economic Thought● Keynesian Economic Thought● Other School of Economic Thought● Philippine Economic Thought

Bear in mind that it takes sustained effort – and some dedicated patience – to studyand learn the subject. But, it is assured that the effort is well worth it. It is hoped thismodest work helps you. So, the best of luck as you begin your journey in answeringthe worktext exercises!

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CONTENTS

INTRODUCTION TO HISTORY OF ECONOMIC THOUGHT

EARLY ECONOMIC THOUGHT

INSTITUTIONAL ECONOMIC THOUGHT

MERCANTILISM AND PHYSIOCRACY

CLASSICAL ECONOMIC THOUGHT

MARXIAN ECONOMIC THOUGHT

NEOCLASSICAL ECONOMIC THOUGHT

AUSTRIAN ECONOMIC THOUGHT

OTHER SCHOOLS OF ECONOMIC THOUGHT

KEYNESIAN ECONOMIC THOUGHT

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3

7

10

15

19

23

28

31

35

39

EXERCISE 1

Fill in the blanks. Write the correct answer on the blank provided for to complete each of the following statements.

1. The ____________ deals with different thinkers andtheories in the subject that became economics fromthe ancient world to the present day.

2. The principal fact about Economics that people mustalways remember is that it is a ____________ science.

3. ____________ is the study of economies or economicphenomena in the past.

4. The earlier name for economics is ____________.

5. The word economics originates from the Greek word____________ which means “household management”.

6. The Greek word ‘nomia’ from which economics isoriginated means ____________.

7. The ancient ____________ philosophers were amongthe first to write about economics.

8. In ancient times, Economics was not a separatediscipline, but part of ____________.

9. Economic science became popularized in the shorterform of ____________.

10. The broad definition of economics given by____________ remains the most popular one in usetoday.

11. ____________ defines economics as a study of wealthand considered to be the founding father of moderneconomics.

12. ____________ is not a history of what actually happenedin the past but rather a history of theories about how theeconomy works.

13. Theory and historical processes are ____________interconnected.

14. The central point in ____________ definition ofeconomics is wealth creation.

15. ____________describes the variety of approaches in thehistory of economic theory.

EXERCISE 2

Classification. Determine whether each of the following is a concern of economic history or history of economic thought. Write EH for economic history and HET for history of economic thought.

16. The causes of Great Depression in the 1930s.__________

17. Adam Smith's vision of a free market economy, basedon private property, capital accumulation and division oflabor. __________

18. The impact of 1997 financial crisis that gripped much ofAsian countries. __________

19. The transition of Philippine economy from one based onagriculture to one based more on services andmanufacturing. __________

20. The economic policies and reforms implemented duringthe administration of George Bush in USA. __________

21. The impact of Martial law on the economy of thePhilippines. __________

22. The idea behind the Say’s Law describing "Supplycreates its own demand". __________

23. The law of comparative advantage formulated by DavidRicardo which is a fundamental argument in favor of freetrade among countries. __________

24. The historical changes in the economy of South Korea.__________

25. The criticism of Karl Marx against the capitalist system,which he described as exploitative and alienating.__________

26. History of the European economy from 1950 – 2,000__________

27. The important work in economics of Thoman Mun, amercantilist in the 17th century. ________

28. The economic theories present in David Ricardo’s book,The Principles of Political Economy__________

29. Keynes' teaching which is reflected in governmentalattempts to control the business cycle by putting moneydirectly into the economy. __________

30. The doctrine of marginal utility, which asserts that thevalue of an item is determined by the need its relativescarcity or abundance at any given time. __________

Republic of the Philippines Pangasinan State University

Lingayen Campus

WORKTEXT 1 : INTRODUCTION TO ECONOMIC THOUGHT Econ 126 – History of Economic Thought

NAME: _______________________________________ SCORE: ___________________________________

YEAR AND COURSE: ___________________________ DATE: ____________________________________

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http://en.wikipedia.org/wiki/Economy

zim://A/A/Asia.html

zim://A/A/Supply%20creates%20its%20own%20demand.html

zim://A/A/Supply%20creates%20its%20own%20demand.html

zim://A/A/Comparative%20advantage.html

zim://A/A/Free%20trade.html

zim://A/A/Free%20trade.html

EXERCISE 3

Classification. Determine the economist who gives each of the propositions on the definition of economics.

Adam Smith (Wealth definition) Alfred Marshall (Material welfare definition) Lionel Robbin (Scarcity definition) Paul Samuelson (Modern Growth-Oriented Definition)

31. Economics looks into of how to make a nation wealthy.__________

32. Economics concerns on the ordinary business of life.__________

33. Economics considers the supreme importance of man inthe economic system. __________

34. Economics examines the alternative uses of scarceresources. __________

35. Economics analyzes the costs and benefits of improvingpatterns of resource allocation. __________

36. Economics looks into ways and means of increasing thewealth of a country. __________

37. Economics stresses that resources are limited and wantsare unlimited. __________

38. Economics is a science of choice. __________

39. Economics deals with how limited resources are utilizedfor the maximum satisfaction. __________

40. Economics concerns with the distribution of consumptionamong various persons and groups in a society.__________

EXERCISE 4

Match the economists with their respective schools of economic thought by connecting the appropriate number next to the corresponding letter.

41. Adam Smith A. Ancient Economic Thought

42. John Maynard Keynes B. Medieval Economic Thought

43. Aristotle C. Mercantilist School

44. Francois Quesnay D. Physiocratic School

45. Thomas Aquinas E. Classical School

46. Thomas Mun F. Marxist School

47. Karl Marx G. Neoclassical School

48. Alfred Marshall H. Institutional School

49. Gunnar Myrdal I. Austrian School

50. Ludwig von Mises J. Keynesian School

EXERCISE 5

Provide a concise explanation of the following definitions of economics provided by different economists.

51. “In economics, hope and faith coexist with great scientificpretesion and also a deep desire for respectability”. John KennethGalbraith Canadian-US economist (1908–2006).

___________________________________________________

___________________________________________________

___________________________________________________

___________________________________________________

52. “The first lesson of economics is scarcity: there is neverenough of anything to satisfy all those who want it. The first lessonof politics is to disregard the first lesson of economics”.Thomas Sowell US economist (1930)

___________________________________________________

___________________________________________________

___________________________________________________

___________________________________________________

53. “The purpose of studying economics is …to learn how to avoidbeing deceived by economists”. Joan Robinson UK economist(1903–1983)

___________________________________________________

___________________________________________________

___________________________________________________

___________________________________________________

54. Economics is, at root, the study of incentives: how people getwhat they want, or need, especially when other people want orneed the same thing. Steven D. Levitt Stephen J. Dubner USeconomists (1967– and 1963).

___________________________________________________

___________________________________________________

___________________________________________________

___________________________________________________

55. Economics is a “dismal science” that is “dreary, desolate,and, indeed, quite abject and distressing. Thomas Carlyle,Scottish historian 19th century.

___________________________________________________

___________________________________________________

___________________________________________________

___________________________________________________

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EXERCISE 6

Economist Finder. Search horizontally, vertically and diagonally for all the fifteen economists who formulated and developed different economic theories and economic thought from ancient to contemporary times. Underline the economists found in the search puzzle and write the names on the space provided for below.

56. __KARL MARX_______________________

57. ____________________________________

58. ____________________________________

59. ____________________________________

60. ____________________________________

61. ____________________________________

62. ____________________________________

63. ____________________________________

64. ____________________________________

65. ____________________________________

66. ____________________________________

67. ____________________________________

68. ____________________________________

69. ____________________________________

70. ____________________________________

EXERCISE 7

Indicate the school of economic thought of the following economists and outline two of their economic theories or ideas that contributed to the history of economic thought. Use the space provided for below.

D A V I D J A M E N U M S A M O H T

H I S L A O J E A N B A P D U D L O

U Y V L T H S E B E N T H A M N D A

M T T A E N D L L E O N W A L R A S

E L H H D M J T O L I T S E A R W E

G L O S P A A O C K Z V C C A R L M

U I M R A Y M T O S A G I D E A N E

N M A A U N E S J W Y R Q S M I T N

E T S M L A S I M G D H L K A Y D G

Y R M D S R O R E I S I P M O F X E

A A A E A D N A V O T B I G A D E R

G U L R M K E A D H G H S L O R N A

N T T F U E D S J E R E M Y R T X D

I S H L E Y E S T R A D A D F R E L

L N U A L N W I L L I A M P E T T Y

U H S S S E S A L A Z A R C O N T E

S O L K O S A N I U Q A S A M O H T

P J Y A N S E U Q S I O C N A R F M

Economist School of Economic thought

Contributions to Economic Thought

71. Jean-BaptisteSay (1767–1832)

72. Adam Smith(1723–1790)

73. Vilfredo Pareto(1848–1923)

74. Friedrich Engels(1820–1895)

75. Paul Krugman(1953)

76. Jeremy Bentham(1748–1832)

77. John MaynardKeynes (1883 –1946)

78. John Stuart Mill(1806–1873)

79. David Ricardo(1772–1823)

80. Thomas Malthus(1766–1834)

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Private property

Wealth

Division of labor GovernmentDemocracy

Wants

MoneyEfficiency

Labor

Economy

Just price

Market

Public administration

Monopoly Labor theory of valueConsumption

Production

Scarcity

Jurisprudence

Utility Usury

EXERCISE 1

Modified True or False. Determine whether each of the following statements is true or false. Write the answer on the blank after the number.

1. Ancient economic thinkers lived from from 5th to 15th

century. ___________

2. Arthashastra is an ancient Indian treatise by Chalukyathat argues for an autocracy managing an efficient anddeveloped economy. ____________

3. The Oeconomicus is a systematic treatment of theadministration of an industrialized estate, emphasizinghuman capital and organizational efficiency.____________

4. Fan Li is an Indian thinker well-known for his "GoldenRules of Business Success". ____________

5. Plato’s dialogue, “The Republic” contained references tospecialization of labor and production. ____________

6. “The more useful or desirable a good is, the higher thevalue of the means of production is” according toAristotle. ____________

7. Aristotle disapproved highly of usury and also cast scornon making money through monopoly. ____________

8. Aristotle rejects labor as the source of wealth.____________

9. Aristotle declares that property is best left in privatehands than in public hands. ____________

10. Thomas Aquinas reasoned that it was nota moral obligation of businesses to sell goods at a justprice. ____________

11. Summa Theologica is the magnum opus of ThomasMalthus which deals with the concept of just price.____________

12. Early Muslim economists understand the power of supplyand demand , stating "If desire for goods increases whileits availability decreases, its price rises. ____________

13. Al-Ghazali is considered as the father of moderneconomics of the Muslim world. ____________

EXERCISE 2

Identification. Match the statements below to the items inside the following box. Write your answer on the blank provided.

14. The mechanism within which voluntary exchange takesplace. ____________

15. The right of persons and firms to own or control land,capital, and other forms of property. ____________

16. A theory that attempts to set standards of fairness intransactions. ____________

17. A method used by ancient people to categorize differentjobs, and divide them to skilled members of a society.____________

18. The study of government decision making andimplementation of government policies. ____________

19. The natural process of obtaining things with utility thatcan satisfy life’s wants and needs. ____________

20. The value of a good is related to the labor needed todproduce or obtain that good. ____________

21. Payment for the use of money in a transaction thatresults in gain for the lender. ____________

22. The rule of the people encompassing social andeconomic conditions that enable the free and equalpractice of political self-determination. ____________

23. These are unlimited desires that a person would like tohave. ____________

24. A measure of total satisfaction derived by a person fromconsuming a good or service. ____________

25. The abundance of valuable resources or materialpossessions. ____________


Lingayen Campus

WORKTEXT 2 : EARLY ECONOMIC THOUGHT Econ 126 – History of Economic Thought

NAME: _______________________________________ SCORE: ___________________________________


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zim://A/A/Usury.html

zim://A/A/Monopoly.html

http://en.wikipedia.org/wiki/Morality

http://en.wikipedia.org/wiki/Just_price

http://en.wikipedia.org/wiki/Just_price

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zim://A/A/Rights.html

zim://A/A/Person.html

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zim://A/A/Own.html

zim://A/A/Land%20(economics).html

zim://A/A/Capital%20(economics).html

zim://A/A/Property.html

EXERCISE 3

Picture Match. Match each of these economists with his profile picture. Write the letter of you answer in the blank provided before the number

26. Aristotle

27. Plato

28. Xenophon

29. Chanakya

30. Fan Li

31. Al-Ghazali

32. Ibn Khaldun

33. Abu Yusuf

34. Thomas Aquinas

35. Duns Scotus

EXERCISE 4

Identification. Identify the magnum opus of the following early economic thinkers. Write the answer in the blank provided after the number.

36. Aristotle _____________________________________

37. Plato ________________________________________

38. Xenophon ___________________________________

39. Chanakya ____________________________________

40. Fan Li _______________________________________

41. Al-Ghazali ____________________________________

42. Ibn Khaldun ___________________________________

43. Abu Yusuf ___________________________________

44. Thomas Aquinas ______________________________

45. Duns Scotus __________________________________

EXERCISE 5

Classification. Determine the early economic thinker responsible for each of the following economic thought and ideas. Write he answer on the blank provided after the item.

46. Consumption was the objective of production, and thesurplus should be allocated to the rearing of children,and personal satiation ought to be the natural limit ofconsumption. ____________

47. Just price, which he considered necessary for thereproduction of the social order. ____________

48. There are three sources of wealth: individual earnings;profit from exchange, and acquisition by bequest ordiscovery. ____________

49. To sell a thing dearer or to buy it cheaper than it is worthis, in itself, unjust and illicit. ____________

50. The relationship between tax rates and tax revenueincreases as tax rates increase for a while, but then theincreases in tax rates begin to cause a decrease in taxrevenues as the taxes impose too great a cost toproducers in the economy. ____________

51. The seasonality’s effect on the market demand andsupply and their implications on prices. ____________

52. Businesses owned by responsible and organizedmerchants shall eventually surpass those owned bywealthy rulers. ____________

53. Population growth was directly a function of wealth.____________

54. The use of tax revenues for socioeconomicinfrastructure, and included discussion of various typesof taxes, including sales tax, death taxes, and importtariffs. ____________

55. The optimum state is a rigid, static, ideal construct fromwhich any deviation whatsoever is considered to beregressive. ____________

56. Exchange as a bilateral process in which both partieswould be better off as a result of the exchange.____________

57. A conducive atmosphere is necessary for the state'seconomy to thrive. This requires that a state's law andorder be maintained. ____________

58. Price varies with wants. ____________

59. Poverty as a state in which someone does not have thatwhich he desires, so that indigentia could be applied to"luxuries" as well as "necessities". ____________

60. Effective demand is desire backed by ability to pay.____________

A B B

C D

E F

J H

I J

8

EXERCISE 6

Timeline Activity. Arrange the following events or actions chronologically relating to early economic thought. Indicate A as the first event and J is the last event.

61. Jean Buridan maneuvered the Scholastic notion ofindigentia much closer to the modern concept of effectivedemand.____________

62. Chanakya's Arthashastra, the earliest known treatise oneconomic principles and guidelines for a progressiveeconomy was written. ____________

63. The Oeconomicus was written by Xenophon which isconsidered as one of the earliest works on economics inits original sense of household management.____________

64. Plato describes his ideal state, where property is ownedby all and labor is specialized. ____________

65. Aristotle argues in favor of private property but againstaccumulating money for its own sake. ____________

66. Al-Ghazali classified economics as one of the sciencesconnected with religion, along with metaphysics, ethics,and psychology. ____________

67. Thomas Aquinas argues that owning property is naturaland good, but private property is less important than thepublic good. ____________

68. The work of Duns Scotus, “Sententiae” was published.____________

69. Ibn Khaldun formulated the labor theory of value thatpreoccupied the classical economists of the eighteenthand nineteenth centuries. ____________

70. French philosopher Nicole Oresme wrote a work on themedieval conception of money. ____________

EXERCISE 7

Essay. Briefly explain the following.

71. Explain Plato’s theory of the ideal state.____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

72. Contrast and compare Plato and Aristotle’s view on thedesirability of private property.____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

73. Discuss Aristotle’s distinction between needs andwants.____________________________________________________________________________________________________________________________________________________________________________________________________________________________

74. Explain Aristotle’s ideas on the appropriateness ofeconomic activity.____________________________________________________________________________________________________________________________________________________________________________________________________________________________

75. Explain economic principles present in Xenophon’sOeconomicus.____________________________________________________________________________________________________________________________________________________________________________________________________________________________

76. Give one economic idea each of Indian and Chineseearly economic thinkers.____________________________________________________________________________________________________________________________________________________________________________________________________________________________

77. Explain the idea of Ibn Khaldun on economic growth.____________________________________________________________________________________________________________________________________________________________________________________________________________________________

78. Explain the concept of just price.____________________________________________________________________________________________________________________________________________________________________________________________________________________________

79. Explain the evolving concept of usury and show howthis concept is still used in our society.____________________________________________________________________________________________________________________________________________________________________________________________________________________________

80. Explain how does Duns Scotus criticize the ThomasAquinas’ perspective of just price.____________________________________________________________________________________________________________________________________________________________________________________________________________________________

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http://www.newworldencyclopedia.org/entry/Chanakya

http://www.newworldencyclopedia.org/entry/Arthashastra

zim://A/A/Xenophon.html

zim://A/A/Economics.html

zim://A/A/Al-Ghazali.html

http://en.wikipedia.org/wiki/Sententiae%20/o%20Sententiae

http://en.wikipedia.org/wiki/Nicole_Oresme%20/o%20Nicole%20Oresme

EXERCISE 1

True or False. Determine whether each of the following statements is true or false. Write the answer on the blank after the number.

1. Mercantilism is a pre-classical economic thought,according to which the prosperity of nations is reachedby promoting agriculture. ________

2. Physiocratic school of economics focuses onaccumulation of gold and balance of trade. ________

3. Mercantilism is developed only in France during a shorterperiod than physiocracy. ________

4. Physiocrats impose high tariffs especially onmanufactured goods. ________

5. Land is the most important resource of a nation inmercantilistic point of view. ________

6. Mercantilism is severely criticized by the advocatesof laissez-faire. ________

7. Trade balance is favorable if there is an excess of exportsover imports. ________

8. The goal of economic activity, according to mercantilists,was production, not consumption. ________

9. Mercantilists views the economic system as a zero-sumgame, in which any gain by one party required a loss byanother. ________

10. Export represent money coming into the country andimport represents money going out. ________

11. In a mercantilists’ point of view, the control of thegovernment is essential for the attainment of favorablebalance of trade. ________

12. One of the most notable mercantilists is Thomas Munfrom United States. ________

13. The last major mercantilist work is DavidRicardo's Principles of Political Economy published in1767. ________

14. Tariff should be used to encourage exports anddiscourage imports. ________

15. Economic Table is an economic model first describedby William Petty in 1759 laid the foundation of thePhysiocrats’ economic theories. ________

EXERCISE 2

Identification. Match the statements below to the items inside the following box. Write your answer on the blank provided for.

16. Difference between the value of exports and imports ofoutput in an economy ____________

17. Domestic products sold to the rest of the world____________

18. Imported products bought from the rest of the world____________

19. Wealth is determined by the amount of precious metalspossessed ____________

20. Trade of goods and services without trade barriers withfree access to markets and market information____________

21. Economic policy of restraining trade between nationsthrough trade barriers ____________

22. Course of action by the government that is intended toinfluence or control the behavior and performance of theeconomy ____________

23. Tax levied on imports or exports ____________

24. Used as currency that derives its value from governmentregulation or law ____________

25. Cultivation of plants and animals used to sustain life____________

26. Measure of output produced from a production process,per unit of input used. ____________

Private property

Wealth

Division of labor GovernmentDemocracy

Wants

MoneyEfficiency

Labor

Economy

Just price

Market

Public administration

Monopoly Labor theory of valueConsumption

Production

Scarcity

Jurisprudence

Utility Usury


Lingayen Campus

WORKTEXT 3 : MERCANTILISM AND PHYSIOCRACY Econ 126 – History of Economic Thought

NAME: _______________________________________ SCORE: ___________________________________


10

27. Decrease in the marginal output of a production processas the quantity of a single input is increased.

28. Philosophy stressing the moral worth of an individual____________

29. Factor of production encompassing all natural resourcessuch as forest, water and mineral deposits____________

30. Distribution of land from the rich to the poor or landless__________

EXERCISE 3

Classification. Determine whether the following statements pertains to mercantilism or physiocracy. Write M for mercantilism and P for physiocracy.

31. The wealth of nations is derived solely from productivework or the value of land agriculture. ________

32. Colonies and territories are established for greateraccumulation of wealth. ________

33. Export is important than import. ________

34. Foreign trade is the paramount motive for ensuring theprosperity and security of the nation. ________

35. Manufacturing industries are seen superior and morerelevant than agriculture. ________

36. All imports of foreign goods be discouraged as much aspossible. ________

37. Production of goods and services is viewed asconsumption of the agricultural surplus. ________

38. Capital is needed to sustain the laborers while theyproduced their product. ________

39. Wealth came from self-interest and markets areconnected by money flows. ________

40. Land is the most important resource of a nation and laboris the sole source of value. ________

41. A strong nation should have large population to providea supply of labor, a market, and soldiers. ________

42. Human wants should be minimized, especially forimported luxury goods, for they drained off preciousforeign exchange. ________

43. There should be a single and direct tax on land, as it isthe only productive source. ________

44. Trade is a necessary evil, and there should be free trade.________

45. If one country has more gold than another, it wasnecessarily better off. ________

EXERCISE 4

Timeline Activity. Arrange the following events chronologically relating to economic thought of mercantilists and physiocrats. Indicate A as the first event and J is the last event.

46. Gerard de Malynes argues that England should regulateforeign exchange to stop the nation’s gold and silverfrom going abroad. ________

47. Thomas Mun advocates a mercantilist policy, usingforeign exports as a way of increasing a nation’s wealth.________

48. William Petty shows how the economy can be measuredin Quantulumcunque Concerning Money. ________

49. John Locke states that what you create by your ownlabor is yours by right. ________

50. Dudley North argues that the main spur to increasednational wealth is consumption. ________

51. David Hume argues that public goods should be paid forby government. ________

52. Richard Cantillon’s Essay, discusses the circulation ofmoney from the city to the countryside. ________

53. Physiocrats argue that land and agriculture are the onlysources of economic prosperity. ________

54. Quesnay produces his Economic Table, the firstanalysis for the workings of a macroeconomy. ________

55. Adam Smith criticized and rejected the mercantilistsarguing that consumption was paramount to production.________

EXERCISE 5

Classification. Identify the mercantilist or physiocrat who is credited for each of these these economic thoughts/statements.

56. Trade was the only way to increase nation's treasure ornational wealth. ___________

57. To inspect the country's soil with the greatest care, andnot to leave the agricultural possibilities of a singlecorner or clod of earth unconsidered. ___________

58. It is solely the abundance of money within a state whichmakes the difference in its grandeur andpower.___________

59. There are two functions of money, as a "counter" tomeasure value, and as a "pledge" to lay claim to goods.___________

60. Ownership of property is a natural right and is derivedand created by the application of labor. ___________

61. As far as money is concerned, the demand is exclusivelyregulated by its quantity. ___________

62. Goods with inelastic demand should be exportedbecause more money could be made from higher prices.___________

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63. All raw materials found in a country must be used indomestic manufacture, since finished goods have ahigher value than raw materials. ___________

64. There is proportionate relationship between moneysupply and price level, keeping volume of trade andvelocity of money constant. ___________

65. Capital was regarded as a dependent factor producedjointly by land and revenue. ___________

66. Necessity is defined as the uniformity, observable in theoperations of nature; where similar objects are constantlyconjoined together. ___________

67. Individual ownership of goods is justified by the laborexerted to produce those goods to produce goodsbeneficial to society. ___________

68. Entrepreneurs are non-fixed income earners who payknown costs of production but earn uncertain incomes.___________

69. The economic system consists of three economicmovers: proprietary class, productive class and sterileclass. ___________

70. Agriculture is so valuable because it works with nature—which multiplies the farmer’s effort and resources toproduce a net surplus. ___________

EXERCISE 6

Matching Type. Match each economist with his magnum opus to the right. Write the answer in the box before each number.

71. James Steuart A. England’s Treasure by Foreign Trade

72. Richard Cantillon B. Political Arithmetic

73. Leonardus Lessius C. On Justice and Law

74. Jean Bodin D. An Essay of the East India Trade

75. Thomas More E. Utopia

76. Thomas Mun F. Two Treatises of Government

77. William Petty G. Principles of Political Economy

78. Charles Davenant H. Essay on the Nature of Trade

79. John Locke I. Reply to Malestroit

80. Dudley North J. A Treatise of Human Nature

81. David Hume K. Economic Table

82. Jacques Turgot L. Testament Politique

83. Bernard Mandeville M. Discourses upon Trade

84. Francois Quesnay N. Fable of the Bees

85. Victor de Riqueti O. Reflection on the Formation of Wealth

EXERCISE 7

Picture Match. Match each of these economists with his profile picture. Write the letter of you answer in the blank provided before the number.

86. Thomas Mun

87. Pierre Samuel duPont de Nemours

88. Francois Quesnay

89. Jean Baptiste Colbert

90. Thomas More

91. William Petty

92. Dudley North

93. Jean Bodin

94. John Law

95. David Hume

96. Jacques Turgot

97. John Locke

98. Philip Von Hornick

99. BernardMandeville

100. James Steuart

101. Pierre Le Pesant

102. LeonardusLessius

103. Victor de Riquetti

104. Richard Cantillon

105. Charles Davenant

A B

C D

E F

G H

I J

K L

M N

O P

Q R

S T

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http://en.wikipedia.org/wiki/File:Sir_James_Denham_Steuart._1713-1780.gif

http://en.wikipedia.org/wiki/Pierre_Samuel_du_Pont_de_Nemours

http://en.wikipedia.org/wiki/Pierre_Samuel_du_Pont_de_Nemours

EXERCISE 8

Briefly explain what is asked.

106. Give two relevant contributions made by mercantilistsand the physiocrats to economic theory.____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

107. Explain the economic ideas of the mercantilists aboutforeign trade.____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

108. Write an essay explaining the various economic policiesof the mercantilists.____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

109. Discuss the economic contributions of William Petty tothe field of economic theory.____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

110. What are the factors responsible for the rise ofPhysiocracy?____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

111. Explain the economic ideas and principles of thephysiocrats.____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

112. Contrast and compare the mercantilist and physiocraticapproaches to analyzing an economy.____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

` 113. Discuss the "Tableau économique" (Economic Table) of

François Quesnay which gives the basic foundations ofideas of the physiocrats.________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

114. Explain the economic idea of Jacques Turgot ondiminishing returns.____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

` 115. What are the criticisms levelled against mercantilism by

classical economists especially Adam Smith?____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

13

EXERCISE 9

Creative Work. In a collage or drawing, explain and illustrate any key principles of economic thought that can be elucidated from the following poem entitled “The Fable of the Bees” (1705) by Bernard Mandeville. Use the provided two boxes for your work.

The Fable of the Bees Bernard Mandeville

A Spacious Hive well stocked with Bees,

That lived in Luxury and Ease;

And yet as famed for Laws and Arms,

As yielding large and early Swarms;

Was counted the great Nursery

Of Sciences and Industry.

No Bees had better Government,

More Fickleness, or less Content.

They were not Slaves to Tyranny,

Nor ruled by wild Democracy;

But Kings, that could not wrong, because

Their Power was circumscribed by Laws.

The 'hive' is corrupt but prosperous,

yet it grumbles about lack of virtue.

A higher power decides to give them

what they ask for: But Jove, with Indignation moved,

At last in Anger swore, he'd rid

The bawling Hive of Fraud, and did.

The very Moment it departs,

And Honesty fills all their Hearts;

This results in a rapid loss of prosperity,

though the newly-virtuous hive does not mind:

For many Thousand Bees were lost.

Hardened with Toils, and Exercise

They counted Ease it self a Vice;

Which so improved their Temperance;

That, to avoid Extravagance,

They flew into a hollow Tree,

Blest with Content and Honesty

Principles and Insights of Economic Thought

_________________________________________________

_________________________________________________

_________________________________________________

_________________________________________________

_________________________________________________

_________________________________________________

_________________________________________________

_________________________________________________

Collage or Drawing

14

EXERCISE 1

True or False. Write True if the statement is correct and False if it is incorrect.

1. Classical economics is widely accepted as the firstmodern school of economic thought. __________

2. Famous economists of the socialist school of economicthought include Adam Smith, David Ricardo, ThomasMalthus and John Stuart Mill. __________

3. Adam Smith is often considered as the father of moderneconomics. __________

4. In a free market, prices of goods and services aredetermined by the market. __________

5. The Wealth of Nations emphasizes sympathy for others.__________

6. Smith and Ricardo are both opponent of protectionism fornational economies. ________

7. Malthus is the first economist to propose a systematictheory of population. __________

8. Malthus argues that population increases geometricallyand food supply increases arithmetically. __________

9. According to Say’s law, supply always equals demand.__________

10. In Smith’s view government has an important role inproviding public goods that private markets are unlikelyto provide. __________

11. The idea of absolute advantage suggests that twocountries will both gain from trade if they have differentrelative costs for producing the same goods__________

12. As more people work on a fixed amount of land, less andless output is added. __________

13. Ricardo expresses the relationship among the threefactors of production: land, labor and income.

14. Competition is key to the inefficient working of freemarkets. __________

15. In his Theory of Profit, Ricardo states that as real wagesincrease, real profits decrease because the revenue from

the sale of goods is split between profits and wages. __________

EXERCISE 2

Crossword Puzzle. Complete the following crossword puzzle by identifying the key principles in classical economic thought below.

16 17 18

19

S

20 21 22

23

23

25 26

27

28

29 30

31

32 33

34 35

16. An economic system in which there is minimalintervention or regulation from government.

17. The ability of a firm or country to produce more of a goodthan others using the same amount of resources.

18. Self-regulating nature of the marketplace.

19. The notion of firms striving for a greater share of amarket to sell goods and services.

20. Amount of payments to all inputs used in producing agiven quantity of output.

21. A process by which government raises revenues todefray its necessary expenditures.

22. This is characterized by the private ownership ofresources and the use of a system of markets and pricesto coordinate and direct economic activity.

23. A measure of satisfaction, referring to the totalsatisfaction received by a consumer from consuming agood or service.


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WORKTEXT 4 : CLASSICAL ECONOMIC THOUGHT Econ 126 – History of Economic Thought

NAME: _______________________________________ SCORE: ___________________________________


15

http://en.wikipedia.org/wiki/Land_(economics)

24. The transfer of ownership of goods and services from oneperson or entity to another.

25. The physical and mental effort that people devote toproducing goods and services.

26. The income received from using land resource.

27. This refers to produced goods that can be used asresources for further production.

28. A place where buyers and sellers meet for exchange ofgoods or services.

29. __, __, __, __, __, __, ment, the amount purchased perunit time of goods which are not consumed but are to beused for future production.

30. The willingness or ability of an individual to buy aparticular good.

31. Resource payment received by workers in exchange fortheir labor.

32. Income not spent, or deferred consumption.

33. The difference between a firm's total revenue and totalcost.

34. A thing that is necessary for survival.

35. These are concepts associated with a specific change inthe quantity used of a good or service.

EXERCISE 3

Identification. Identify the magnum opus of each of the following classical economists. Write the answer in the blank provided after the number.

36. Adam Smith __________________________________

37. David Ricardo_________________________________

38. Thomas Malthus ______________________________

39. Jean-Baptiste Say _____________________________

40. John Stuart Mill _______________________________

41. Jeremy Bentham ______________________________

42. Henry Charles Carey ___________________________

43. Henry Thornton _______________________________

44. Pierre-Joseph Proudhon ________________________

45. Frederic Bastiat _______________________________

46. Edmund Burke _______________________________

47. Jean Charles Léonard de Sismondi _______________

48. Robert Owen _________________________________

49. Thomas Tooke ________________________________

50. Alexander Hamilton ____________________________

EXERCISE 4


51. Adam Smith

52. David Ricardo

53. Thomas Malthus

54. John Stuart Mill

55. Edmund Burke

56. Jean-Baptiste Say

57. Henry Thornton

58. Henry Charles Carey

59. William Godwin

60. Alexander Hamilton

61. Henry Clay

62. Mathew Carey

63. Wilhelm Roscher

64. Charles Gide

65. Robert Owen

66. Jeremy Bentham

67. George WilhelmFriedrich Hegel

68. James Mill

69. Pierre-JosephProudhon

70. Frederic Bastiat

A B

C D

E F

G H

I J

K L

M N

O P

Q R

S T

16

zim://A/A/Pierre-Joseph%20Proudhon.html

http://en.wikipedia.org/wiki/Frederic_Bastiat

http://en.wikipedia.org/wiki/Jean_Charles_L%C3%A9onard_de_Sismondi

EXERCISE 5

Smith vs. Ricardo. Determine whether the following economic thought is credited for Smithian economics or Ricardian economics. Write S for Smithian economics and R for Ricardian economics.

71. Rational self-interest and competition can lead toeconomic prosperity. ________

72. Productive labor should be made even more productiveby deepening the division of labor. ________

73. The recovery of a great foreign market will generally morethan compensate the transitory inconvenience of payingdearer during a short time for some sorts of goods.________

74. The rich should contribute to the public expense, not onlyin proportion to their revenue, but something more thanin that proportion. ________

75. Comparative advantage is a specialization techniqueused to create more efficient production. ________

76. The relative price of two goods is determined by the ratioof the quantities of labour required in their production.________

77. Wages should be left to free competition, so there shouldbe no restrictions on the importation of agriculturalproducts from abroad. ________

78. Profits depend on high or low wages, wages on the priceof necessaries, and the price of necessaries chiefly onthe price of food. ________

79. Consumption is the sole end and purpose of allproduction. ________

80. Humans, in his view, were social creatures who act withmoral restraint, using “fair play” in competition.________

81. If the government does not do anything, there’s acontrolling factor of people themselves who can guidemarkets. ________

82. The value of a good or service is dependent upon thelabor used in its production. ________

83. The more specialized the workers and businesses, thegreater the market growth and the higher the returns oninvestments. ________

84. Competition is key to the efficient working of freemarkets. ________

85. There is no perfect measure of value, since any measurechosen varies with fluctuations in wages and profit rates.________

EXERCISE 6

Economic Thought. Identify the classical economist credited for each of these principles of economic thought.

86. Opportunity cost __________

87. Supply creates its own demand__________

88. Rent theory __________

89. Invisible hand __________

90. Labor theory of value __________

91. Division of labor

92. Free market __________

93. Comparative advantage __________

94. Absolute advantage __________

95. Paradox of value __________

96. Law of Diminishing returns __________

97. Minimum wage __________

98. Utility __________

99. Reciprocal demand __________

100. Theory of market __________

EXERCISE 7

Timeline Activity. Arrange the following events or actions chronologically relating to history of the classical school of economic thought. Indicate A as the first event and J is the last event.

101. Adam Smith’s classic work, An Inquiry into the Natureand Causes of the Wealth of Nations is published._________

102. Jeremy Bentham sets out his theory of utilitarianism; itsgoal is “the greatest happiness of the greatest number._________

103. English philosopher William Godwin advocates theredistribution of national resources to help the poor._________

104. Edmund Burke criticizes state involvement in theregulation of wages and prices. _________

105. Thomas Malthus warns of the danger of populationoutstripping resources and the suffering that this willbring. _________

106. Jean-Baptiste Say claims or proposes that the marketwill balance supply and demand naturally. _________

17

107. David Ricardo lays the foundations for 19th-centuryclassical economics, advocating free trade and thespecialization of labor. _________

108. Jean Charles Léonard de Sismondi describes businesscycles and the difference between long-term growth andshort-term ups and downs. _________

109. Wilhelm Roscher founded the German Historical Schoolof Economics, which promoted the cyclical theory ofnations. _________

110. John Stuart Mill's textbook, Principles of PoliticalEconomy is published which essentially summarizes ofthe economic wisdom of the mid nineteenth century._________

EXERCISE 8

Essay. Briefly explain the thought of the following economic insights from the classical economists.

111. Profits depend on high or low wages, wages on the price ofnecessaries, and the price of necessaries chiefly on the price offood. David Ricardo______________________________________________________________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________

112. Products are paid for with products and "a glut can take placeonly when there are too many means of production applied to onekind of product and not enough to another". Jean-Baptiste Say______________________________________________________________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________

113. The power of population is so superior to the power of theearth to produce subsistence for man that premature death mustin some shape or other visit the human race. Thomas Malthus______________________________________________________________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________

114. Every individual is motivated by self-interest. Every man, soto say, is the maximizer of gain and minimizer of loss. Adam Smith_____________________________________________________________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________

115. Every individual is motivated by self-interest. Every man, soto say, is the maximizer of gain and minimizer of loss. Adam Smith

___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________

116. Demand for commodities is not demand for laborers. JohnStuart Mill___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________

117. Money performs but a momentary function in this doubleexchange; and when the transaction is finally closed, it will alwaysbe found, that one kind of commodity has been exchanged foranother. Jean-Baptiste Say______________________________________________________________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________

118. It is not from the benevolence of the butcher, the brewer orthe baker, that we expect our dinner, but from their regard to theirown self-interest. We address ourselves, not to their humanity butto their self-love, and never talk to them of our own necessitiesbut of their advantages. Adam Smith______________________________________________________________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________

119. Pleasures and pains can be ranked according to their valueor "dimension" such as intensity, duration, certainty of a pleasureor a pain. Jeremy Bentham______________________________________________________________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________

120. Even if a country could produce everything more efficientlythan another country, it would reap gains from specializing in whatit was best at producing and trading with other nations. DavidRicardo___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________

___________________________________________________

18

http://en.wikipedia.org/wiki/Historical_school_of_economics

http://en.wikipedia.org/wiki/Historical_school_of_economics

EXERCISE 1


1. Marxian economics pertains to economic principles onthe functioning of capitalism based on the works of KarlMarx. __________

2. Karl Marx, in his Das Kapital, argues that the mostimportant characteristic of a market economy is that itpermits a rapid growth in productive abilities. _________

3. Das Kapital a critical analysis of socialism as politicaleconomy. __________

4. Ernst Engel co-authored The Communist Manifesto.__________

5. The main objective of the capitalists is to maximize profit.__________

6. Marx argues that capitalists exploit workers by payingthem less in wages than the value they produce.__________

7. In Marxian theory, the proletariats are wage laborers andbourgeoisie are capitalists. __________

8. A commodity's use-value is its usefulness for fulfillingsome practical purpose. __________

9. Under the capitalist mode of production, the workers ownthe necessary means of production. __________

10. Marx has broadly distinguished six different stages ofdevelopment through which the society has passed.__________

11. Constant capital refers to the non-human inputs intoproduction, while variable capital refers to the humaninput. __________

12. The utility of a thing makes it a use value. __________

13. The amount of labor used to produce a good isproportional to its value according to Karl Marx.__________

14. Marxian economics regards surplus labor as the ultimatesource of capitalist profits. __________

15. The fifth state of development according to Marx’s theoryis socialism.

EXERCISE 2

Identification. Identify each item below by referring to the following box which contains economic concepts and theories used in Marxian Economics. Write the answer on the space provided for after the number.

16. __________________ refers to the actual activity oreffort of producing goods or services.

17. __________________ refers to the new value createdby workers in excess of their own labor-cost

18. __________________ the value of a commodity whichis simply related to the amount of human labor requiredto produce it.

19. __________________ refers to the ability or capacity ofa person to do work.

20. __________________ refers to the labor performed inexcess of the labor necessary to produce the means oflivelihood of the worker.

21. __________________ refers to the way of producing agood using a combination of productive forces andsocial and technical relations of production.

22. __________________ refers to the human labor powerand available knowledge given the level of technology inthe means of production.

23. __________________ refers to the ratio at whichcommodities should be traded for one another, but notidentical.

24. __________________ refers to means of productionplus labor.

25. __________________ refers to the class of a capitalistsociety that does not have ownership of the means ofproduction.


Lingayen Campus

WORKTEXT 5 : MARXIAN ECONOMICS Econ 126 – History of Economic Thought

NAME: _______________________________________ SCORE: ___________________________________


19

26. __________________ refers to the class of a capitalistsociety or minority who own the means of production.

27. __________________ refers to things with the aid ofman who acts upon the subject of labor, and transformsit.

28. __________________ refers to everything to whichman's labor is directed.

29. __________________ refers to the relations humanbeings adopt toward each other as part of the productionprocess.

30. __________________ refers to the unemployed incapitalist society.

31. __________________ refers to the operation wherebyprofits are reinvested increasing the total quantity ofcapital.

32. __________________ refers to the cost incurred in hiringlabor power. Variable capital by contrast refers to thecapital outlay on labor costs.

33. __________________ refers to the non-human inputsinto production such as fixed assets like plant, machinery,land and buildings.

34. __________________ refers to the utility of consuminga good.

35. __________________ refers to the generalizedcommodity production in which most production isorganized for the purpose of trading the products.

EXERCISE 3

A. Classification. For each of the following, identify what factor ofproduction process according to Marxian theory. Write HL forhuman labor, SL for subject of labor and ML of means of labor.

36. Land used for production ____________

37. Timber ____________

38. Factory buildings ____________

39. Computer assembly factory ____________

40. Machineries ____________

41. Roads and bridges ____________

42. Communications networks ____________

43. Wage workers ____________

44. Construction workers ____________

45. Coal ____________

46. Raw materials ____________

47. Semi-conductor chips in a computer assembly factory____________

48. Number of hours of labor rendered by a worker____________

49. Production equipment ____________

50. Crude oil ____________

B. Classification. For each of the following, identify what modeof production process according to Marxian theory is indicated.Write PF for productive forces and RP for relations of production.

51. Technologies ____________

52. Raw materials ____________

53. Social relation between proletariat and bourgeoisie____________

54. Assembly tools ____________

55. Capitalist's exclusive relationship to capital____________

56. Work associations ____________

57. Industrial plant ____________

58. Properties ____________

59. Cooperative work relations ____________

60. Relationships between different production sites____________

C. Classification. For each of the following, determine whatstage of development a society passes through is characterizedbased on Marxian theory. Write PC for primitive communism, SLfor slavery, FE for feudalism and CA for capitalism.

61. The means of production are socially owned.____________

62. With the change in the forces of production, there was agreat increase in the demand for labor, to carry on thenew productive activities. ____________

63. A new relation of production is established.____________

64. New institutions in the form of private ownership of land,money, interest, etc. are developed. ____________

65. States emerged to bring about a coordination among thedivergent interests. ____________

66. The feudal lord partially owned the means of production.____________

67. The serfs or tenants were tied to the land, but they alsoowned some property. ____________

68. The capitalist owns the necessary means of production.____________

69. Division of labor becomes more and more complex.____________

70. There is large-scale production, centralization,monopoly, finance capital and colonialism.____________

20

EXERCISE 4

Timeline Activity. Arrange the following events or actions chronologically relating to history of the Marxian economics. Indicate A as the first event and J is the last event

71. Karl Marx and Friedrich Engels publish the CommunistManifesto. ____________

72. Adam Smith in his great work, The Wealth of Nationsargues that the invisible hand of the market brings order.____________

73. Karl Kautsky edits Marx's Theories of Surplus Value.____________

74. The USSR is established on Marxist principles underVladimir Lenin. ____________

75. Karl Marx publishes the first volume of Capital.____________

76. Fidel Castro’s revolutionaries seized power in Cuba.____________

77. Engels edit Marx's unfinished volumes of Capital afterMarx’s death. ____________

78. Mao Zedong becomes the founding father of the People’sRepublic of China. ____________

79. Austrian Economist Eugen von Böhm-Bawerk publishesKarl Marx and the Close of his System, summarizing thecriticisms of Marx’s labor theory of value. ____________

80. Radical US economist Paul Sweezy publishes Theory ofCapitalist Development, defending Marx’s labor theory ofvalue. ____________

EXERCISE 5

Essay. Explain or discuss what is asked in the following.

81. For Karl Marx, the basic determining factor of humanhistory is economics, why?

________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________

82. Differentiate the belief or perspective of Adan Smith andKarl Marx about capitalism.

________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________

83. Explain that if value is a property common to allcommodities, then whatever it is derived from, whateverdetermines it, must be common to all commodities.

________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________

84. Explain the theory of surplus value and illustrate oneexample.

_______________________________________________ _______________________________________________ _______________________________________________ ______________________________________________________________________________________________

85. Interpret this, “Communism is for us not a state of affairswhich is to be established, an ideal to which reality willhave to adjust itself. We call communism the realmovement which abolishes the present state of things.The conditions of this movement result from thepremises now in existence." – Karl Marx, The GermanIdeology

_______________________________________________ _______________________________________________ _______________________________________________ ______________________________________________________________________________________________

86. Give details on the stages of development a societypasses through based on Marxian theory.

_______________________________________________ _______________________________________________ _______________________________________________ ______________________________________________________________________________________________

87. Discuss Marxian theory of disintegration of capitalism bycontemplating the inherent conflicts and contradictions.

_______________________________________________ _______________________________________________ _______________________________________________ ______________________________________________________________________________________________

88. Marx assumed that under capitalism there is a tendencyto produce a surplus labor force. He called it as the‘reserve army of labor. Discuss the latter concept.

_______________________________________________ _______________________________________________ _______________________________________________ ______________________________________________________________________________________________

89. Provide 5 notable economists that follow and developKarl Marx's economic theory. Explain how they wereinfluenced by Karl Marx.

_______________________________________________ _______________________________________________ _______________________________________________ ______________________________________________________________________________________________

90. Discuss the criticisms of Marx’s Theory made by othereconomists.

_______________________________________________ _______________________________________________ _______________________________________________ ______________________________________________________________________________________________

JNE 12/21/14

21

EXERCISE 9

Briefly explain what is asked.

121. Discuss the development of theory of classicaleconomists to investigate economic dynamics.____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

122. Explain the "invisible hand" theory of Adam Smith.____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

123. Contrast and compare Ricardo’s and Smith’s approachand methodologies to economic theory.____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

124. State Ricardo’s theory of comparative advantage andexplain how people are made better off by free trade____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

125. Explain Ricardo’s theory of distribution and his viewsabout changes in the distribution of income over time____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

126. Explain and critically assess the population theory ofThomas Malthus.___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

127. Explain Say’s theory of market.____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

128. Explain Mill’s theory of reciprocal demand________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

129. Discuss the main contribution of Jeremy Bentham tothe field of economics.____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

130. Distinguish between the theory of absolute advantageand comparative advantage.____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

JNE 12/18/14

22

EXERCISE 1


1. Neoclassical economics is an approach to economicsfocusing on capital accumulation and allocation ofresources. ___________

2. Neoclassical economics dominates macroeconomictheories. ___________

3. In neoclassical school, individuals maximize utility andfirms maximize budget. ___________

4. For neoclassical economics, the value of a commodity isdetermined only by its subjective scarcity. ___________

5. Alfred Marshall publishes his Principles of Economics,bringing new mathematical approaches to economics.___________

6. In the perfectly competitive industry price remains thesame regardless of any individual firm’s level of output.___________

7. According to Marshall, market period is period when thegoods produced for sale on the market are taken as givendata. ___________

8. Marginalism refers to the use of marginal concepts ineconomic theory. ___________

9. According to Menger, Things which can be placed in thesatisfaction of human wants are called utilities.

10. Léon Walras sets out the basis of the general equilibriumtheory, claiming that free markets are stable.___________

11. Carl Menger made use of mathematical approach in hiseconomic analysis. ___________

12. Utility maximization is the source for the neoclassicaltheory of consumption, the derivation of demand curvesfor consumer goods. ___________

13. Vilfredo Pareto formulates Pareto efficiency, a state inwhich no individual can become better off without makinganother worse off. ___________

14. Carl Menger’s magnum opus is Theory of PoliticalEconomy. ___________

15. When the prices at which the sellers are willing to sellequal the prices at which the buyers are willing to buy,general equilibrium is achieved. ___________

16. Neoclassical economics is criticized for having anormative bias.

EXERCISE 2

Identification. Identify each item below by referring to the following box which contains economic concepts and theories used in Neoclassical Economics. Write the answer on the space provided for after the number.

16. When the price goes up, some people buy more.______________

17. When the income increases, demand for a good falls.______________

18. Consumers buy more of a good when its price falls andless when its price rises. ______________

19. An individual enjoys the last good less than the first utilityand satisfaction. ______________

20. The behavior of how the household and firms makedecisions to allocate limited resources is studied.______________

21. Firms determine the price and output level that returnsthe greatest profit. ______________

22. Different bundles of goods between which a consumeris indifferent. ______________

23. Producers sell more of a good when its price increasesand less when its price decreases. ______________

24. People buy and consume goods to be satisfied.______________

25. A large number of firms are selling the product to such alarge number of customers. ______________


Lingayen Campus

WORKTEXT 6 : NEOCLASSICAL ECONOMIC THOUGHT Econ 126 – History of Economic Thought

NAME: _______________________________________ SCORE: ___________________________________


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zim://A/A/Marginal%20concepts.html

zim://A/A/Economics.html

zim://A/A/Normative%20economics.html

26. The amount of goods sought by buyers is equal to theamount of goods produced by sellers. ______________

27. Making one person better off without hurting the others.______________

28. People respond by buying more or less whenever theprice changes. ______________

29. Companies are price takers not price makers.______________

30. The bigger the factory due to expansion, the lower thecost the firm incurs. ______________

EXERCISE 3

Identification. Identify the magnum opus of the following classical economists. Write the answer in the blank provided after the number.

31. William Stanley Jevons____________________________________________

32. Carl Menger____________________________________________

33. Leon Walras____________________________________________

34. Alfred Marshall____________________________________________

35. John Bates Clark____________________________________________

36. Eduard Bernstein____________________________________________

37. Francis Ysidro Edgeworth____________________________________________

38. Irving Fisher____________________________________________

39. Knut Wicksell____________________________________________

40. Joseph Louis Francois Bertrand____________________________________________

41. Vilfredo Pareto____________________________________________

42. Kenneth Arrow____________________________________________

43. Arthur Cecil Pigou____________________________________________

44. Robert Giffen____________________________________________

45. Alexander del Mar____________________________________________

EXERCISE 4


46. William StanleyJevons

47. Carl Menger

48. Leon Walras

49. Alfred Marshall

50. John Bates Clark

51. Eduard Bernstein

52. Francis YsidroEdgeworth

53. Irving Fisher

54. Knut Wicksell

55. Joseph LouisFrancois Bertrand

56. Vilfredo Pareto

57. Kenneth Arrow

58. Arthur Cecil Pigou

59. Robert Giffen

60. Alexander del Mar

A B

C D

E F

G H

I J

K

L

M

N

O

24

EXERCISE 6

Economic Thought. Identify the neoclassical economist credited for each of these economic thought and principles. Write your answer on the space provided for after the item.

61. Demand curve and supply curve____________________________________________

62. Indifference curves____________________________________________

63. General equilibrium theory____________________________________________

64. Edgeworth box____________________________________________

65. Pareto efficiency____________________________________________

66. Price elasticity of demand____________________________________________

67. Income elasticity of demand____________________________________________

68. Engel’s law____________________________________________

69. Marginal utility____________________________________________

70. Marginal revenue productivity theory of wages____________________________________________

71. Welfare economics____________________________________________

72. Perfect competition____________________________________________

73. Consumer surplus____________________________________________

74. Pigovian tax____________________________________________

75. Fisher equation____________________________________________

76. Complementary goods____________________________________________

77. Backward sloping supply curve____________________________________________

78. Externalities____________________________________________

79. Pigovian Effect____________________________________________

80. Labor elasticity of demand____________________________________________

EXERCISE 7

Timeline Activity. Choose from the following matrix the appropriate year that matches the timeline event relating to the history of the neoclassical school economic thought. Write the year in the provided box after the item.

Timeline of Neoclassical Economic Thought

1300 1691 1817 1844 1851 1861 1871 1874 1895 1904 1906 1921 1934 1936 1944 1947 1948 1953 1954 2007

81. Islamic scholar Ibn Taymiyyah publishes a study of theeffects of supply and demand on prices.

82. English philosopher John Locke argues that commodityprices are directly influenced by the ratio of buyers tosellers.

83. British economist David Ricardo argues that prices areinfluenced mainly by the cost of production.

84. Jules Dupuit, a French engineer, originates the idea ofconsumer surplus—a measurement of welfare that canbe used to assess the impact of competition.

85. Irish political economist Francis Edgeworth publishes amathematical assessment of economics inMathematical Psychics.

86. Ernst Engel argues that as people grow richer, theyincrease spending on food by less than their increase inincome.

87. British economist William Jevon describes the marginalutility theory of value, which sees value as coming froma product’s value to its buy.

88. French economist Léon Walras uses equations todetermine the overall equilibrium of an economy.

89. British economist Alfred Marshall demonstrates howsupply and demand create the price of goods in hisPrinciples of Economics.

90. Robert Giffen introduces the concept of Giffen goods, forwhich consumption rises with price.

91. Vilfredo Pareto develops a new theory of equilibrium thattakes account of the compatibility of individual incentivesand constraints.

92. US economist Frank Knight publishes Risk, Uncertainty,and Profit, which analyzed the effects of uncertainty onMarshall’s model of perfect competition.

93. British economist John Hicks uses the concept ofelasticity to measure how easily products can besubstituted for each other.

25

94. British economist John Maynard Keynes identifieseconomy-wide total demand and supply.

95. US economists John von Neumann and OskarMorgenstern extend utility theory to situations withuncertain outcomes.

96. US economist George Stigler dismisses Marshall’sexamples of Giffen goods in Notes on the History of theGiffen Paradox.

97. Friedrich Hayek’s Individualism and Economic Orderattacks Marshall’s view of perfect competition.

98. In The Behavior of Rational Man at Risk, Maurice Allaisdemonstrates how people behave differently from theway utility theory predicts.

99. US economist Kenneth Arrow and French economistGérard Debreu use mathematics to show a connectionbetween free markets and Pareto optimality.

100. Robert Jensen and Nolan Miller revive the argument inGiffen Behavior: Theory and Evidence, which reports theexistence of a Giffen good in poor, urban areas of China.

EXERCISE 8

Essay. Briefly explain the thought of the following economic insights from the neoclassical economists. Write your answer on the blanks provided for after the question.

101. In every case the more of a thing is offered for sale in amarket, the lower is the price at which it will find purchasers. (AlfredMarshall)______________________________________________________________________________________________________ ___________________________________________________ ___________________________________________________

102. A perfect market is a district… in which there are many buyersand many sellers all so keenly on the alert and so well acquaintedwith one another’s affairs that the price of a commodity is alwayspractically the same for the whole of the district.(Alfred Marshall)______________________________________________________________________________________________________ ___________________________________________________ ___________________________________________________

103. The labor and capital of the country acting on its naturalresources, produces annually a certain net aggregate ofcommodities-material and immaterial, including services of allkinds. (Alfred Marshall)______________________________________________________________________________________________________ ___________________________________________________ ___________________________________________________

104. Economics is a “calculus of pleasure and pain.” (WilliamStanley Jevons)_____________________________________________________________________________________________________ ___________________________________________________ ___________________________________________________

105. Given, a certain population, with various needs and powersof production, in possession of certain lands and other sourcesof material: required, the mode of employing their labor whichwill maximize the utility of their produce. (William Utility Jevons)______________________________________________________________________________________________________ ___________________________________________________ ___________________________________________________

106. The origin of all economic value is the relation between ahuman want and the available economic goods capable ofsatisfying the want. (Carl Menger)______________________________________________________________________________________________________ ___________________________________________________ ___________________________________________________

107. In the demand equations, the quantity demanded of aproduct is related not only to the price of the product but also tothe price of all other products and of the productive services.(Leon Walras)______________________________________________________________________________________________________ ___________________________________________________ ___________________________________________________

108. Any change that makes at least one individual better off andno one worse off is an improvement in social welfare. (VilfredoPareto)______________________________________________________________________________________________________ ___________________________________________________ ___________________________________________________

109. Welfare gains came from improving the quality of the workforce through changes in the distribution of income or byimproved working conditions. (Arthur Cecil Pigou)______________________________________________________________________________________________________ ___________________________________________________ ___________________________________________________

110. Economics is a study of economic welfare which is that partof social welfare that can be brought directly or indirectly intorelation with the measuring rod of money. (Arthur Cecil Pigou)

___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________

26

EXERCISE 9

Essay. Explain or discuss what is asked in the following.

111. Explain the difference between classical economics andneoclassical economics theories

________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________

112. Enumerate and explain several assumptions common toschool of Neoclassical economics.

________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________

113. Explain the proposition that economic actors made decisionsbased on margins.

________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________

114. Contrast and compare the scope and method of economicsaccording to Jevons, Menger, and Walras.

________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________

115. Explain the cause and effect relationship between goods andwants by Carl Menger.

________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________

116. Explain why classical value theory explains whatdetermines prices in the long run, whereas marginal utility theoryexplains prices in the short run.

_______________________________________________ _______________________________________________ _______________________________________________ ______________________________________________________________________________________________ ______________________________________________________________________________________________ ______________________________________________________________________________________________

117. Discuss Marxian theory of disintegration of capitalism bycontemplating the inherent conflicts and contradictions.

_______________________________________________ _______________________________________________ _______________________________________________ ______________________________________________________________________________________________ ______________________________________________________________________________________________ ______________________________________________________________________________________________

118. Discuss the concept of Pareto efficiency introduced byVilfedo Pareto which is an important criterion for evaluatingeconomic systems and public policies.

_______________________________________________ _______________________________________________ _______________________________________________ ______________________________________________________________________________________________ ______________________________________________________________________________________________ ______________________________________________________________________________________________

119. Cite important changes or further developments aboutneoclassical economics made by other economists.

_______________________________________________ _______________________________________________ ______________________________________________________________________________________________ ______________________________________________________________________________________________ ______________________________________________________________________________________________ _______________________________________________

120. Discuss the criticisms of neoclassical economics made byother economists.

_______________________________________________ _______________________________________________ ______________________________________________________________________________________________ ______________________________________________________________________________________________ ______________________________________________________________________________________________ _______________________________________________

27

EXERCISE 1


1. Institutional economics is concerned with the institutionsthat constrain the use and exchange of resources andtheir consequences for economic performance. _______

2. Institutional economics does not make an analysis of theeconomic behavior of individuals. _______

3. For institutional economists, the proper subject-matter ofeconomic theory is institutions.

4. Institutional economists based their economic ideasmostly on neoclassical school of economic thought._______

5. Institutional school of economic thought took birth inEurope. _______

6. Rational behavior means that individuals maximizes theirutility function under the constraints they face in pursuitof their self-interest. _______

7. Thorstein Veblen is the first to note that economicbehavior is driven by psychological factors, such as fearand status-seeking, as much as by rational self-interest._______

8. Alfred Marshall analyzes the motivation in capitalism toconspicuously consume their riches as a way ofdemonstrating success. _______

9. The institutions studied by institutional economists isdefined as "collective action in control, liberation andexpansion of individual action". _______

10. In the concept of conspicuous consumption, peopleconsume to be noticed. _______

11. Luxurious goods such as Porsche cars and Rolexwatches are examples of Giffen goods. _______

12. The work of Adolf Berle stands as a founding pillar ofthought in modern corporate governance. _______

13. According to John Commons, economics is based oncollective action in the form of transactions that involvethe exchange of resources. _______

14. “Economics and the Public Purpose” is written by WesleyMitchell. _______

15. Herbert Alexander Simon is known for his research onindustrial organization. _______

EXERCISE 2

Identification. Identify each statement below by referring to the following box which terms pertaining to institutional economics. Write the answer on the space provided for before the number.

16. ____________________ is primarily concerned with therole of human-made institutions in shaping economicbehavior.

17. ____________________ is spending on goods andservices acquired mainly for the purpose of displaying inwealth or maintaining social status.

18. ____________________ uses social and cognitivefactors in understanding the economic decisions orrationality of economic agents performing economicfunctions.

19. ____________________ refers to the arrangement ormechanism of social order governing the behavior of agroup of individuals within a given human community.

20. ____________________ is a category of goodparticularly luxury items for which people's preferencefor buying them rises as the price increases.

21. ____________________ pertains to the collaboration oftwo or more individuals in pursuit of a common goal.

22. ____________________ is a social and economic orderbased on fostering a desire to purchase goods andservices in ever greater amounts.


Lingayen Campus

WORKTEXT 7 : INSTITUTIONAL ECONOMICS Econ 126 – History of Economic Thought

NAME: _______________________________________ SCORE: ___________________________________


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23. ____________________ is an American institutionaleconomist who argues that the economy is a web ofrelationships between people with diverging interests.

24. ____________________ is the magnum opus ofThorstein Veblen and is considered one of the firstdetailed critiques of consumerism.

25. ____________________ is an American economistknown for his empirical work on business cycles.

26. ____________________ is an American economistcredited for his theory of conspicuous consumption.

27. ____________________ is regarded as the principalthinker of Texas school of institutional economics whodeveloped the ideas of dichotomy of "technology" and"institutions" that separates the inventive from theinherited aspects of economic structures.

28. ____________________ is a term introduced by theThorstein Veblen which denotes visible leisure for thesake of displaying social status.

29. ____________________ is a Canadian-Americaneconomist who argues the influence of the market powerof large corporations.

30. ____________________ is an economics book byThorstein Veblen that talks about the growing corporatedomination of culture and the economy.

EXERCISE 3

Put a check mark (/) if the following economic ideas pertains to institutional economics, otherwise, put an (X) mark. Write the answer on the space provided for.

31. It is believed that the group social behavior is moreimportant in analyzing economic problems than theindividual behavior. ________

32. The evolutionary approach in economic analysis isadvocated. ________

33. Study of the evolution and functioning of economicinstitutions is the central theme in economics. ________

34. The idea of formal equilibrium is rejected. ________

35. Inductive method is advocated rather than deductivemethod. ________

36. The notion of individual agents as utility-maximizing isregarded as inadequate or erroneous. ________

37. Markets are viewed as a result of the complex interactionof these various institutions. ________

38. Aggregate macroeconomic outcomes are the primaryconcerns in economics. ________

39. The growth in the wealth of nations and advocatingpolicies to promote such growth is analyzed. ________

40. People have rational preferences among outcomes thatcan be identified and associated with a value. ________

EXERCISE 4

Identification. Identify the magnum opus of each of the following classical economists. Write the answer in the blank provided after the number.

41. Thorstein Veblen ______________________________

42. John R. Commons _____________________________

43. Wesley Clair Mitchell ___________________________

44. Adolf Berle ___________________________________

45. Herbert Alexander Simon _______________________

46. John Kenneth Galbraith ________________________

47. Robert H. Frank ______________________________

48. Warren Samuels ______________________________

49. Geoffrey Hodgson _____________________________

50. Elinor Ostrom ________________________________

EXERCISE 5


51. Thorstein Veblen

52. John R. Commons

53. Wesley ClairMitchell

54. Adolf Berle

55. Herbert AlexanderSimon

56. John KennethGalbraith

57. Robert H. Frank

58. Warren Samuels

59. Geoffrey Hodgson

60. Elinor Ostrom

A B

C D

E F

G H

I J

29

EXERCISE 6

Essay. Briefly Explain the following.

61. What are the factors which lead to the rise ofinstitutionalism?____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

62. Explain why Institutional economics emphasizes abroader study of institution____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

63. Why institutionalism makes extensive use of ideas anddata from other disciplines such as psychology, sociologyand anthropology?____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

64. Institutions form the incentive structure of a society andthe political and economic institutions, in consequence,are the underlying determinant of economic performance(North 1993).___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

65. The institutional economists Thorstein Veblen, JohnKenneth Galbraith, Herbert Simon, and virtually all othershave argued that, even though perfect knowledge ofeconomics may never exist, people, in economictransactions, behave rationally, albeit with "boundedrationality.____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

66. Explain the statement of Robert H. Frank in his TheWinner-Take-All Society, which states that more andmore of current economy and other institutions aremoving toward a state where very few winners take verymuch, while the rest are left with little.____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

67. Explain this statement of Thorstein Veblen aboutconspicuous consumption: “Conspicuous consumptionof valuable goods is a means of reputability to thegentleman of leisure”.____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

68. Under capitalism, man exploits man. Undercommunism, it is just the opposite. Explain thiseconomic statement by John Kenneth Galbraith.____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

69. Outline the new changes and developments in newconstitutional economics____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

70. Discuss the criticisms made by other economists ininstitutional economics.____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

30

EXERCISE 1


1. The Austrian school of economics is an orthodox schoolof economic thought. __________

2. Austrian economists are generally advocates of laissezfaire policies. __________

3. Ludwig von Mises who wrote "Principles of Economics"in 1871, is considered to be the founder of the AustrianSchool. __________

4. Austrian school emphasizes the organizing power of theprice mechanism. __________

5. Austrian school advocates methodological individualismin interpreting economic developments. __________

6. Austrian economists view market mechanism as aprocess and not an outcome of design. __________

7. The Austrian school and neoclassical economics aresimilar in many respects. __________

8. Austrian economists reject empirical statistical methodsin economic analysis. __________

9. The Austrian school holds that prices are determined bysubjective factors like an individual's preference to buythe product. __________

10. Austrian method of deriving theories has been criticizedby mainstream economists. __________

11. Austrian school holds that interest rates are determinedby subjective decision of individuals to spend money nowor in future. __________

12. Austrian economists focus on the credit cycle as theprimary cause of most business cycles. __________

13. According to Austrian economists, the economiccalculation problem refers to scarcity. __________

14. The opportunity cost doctrine was first explicitlyformulated by the Austrian economist Friedrich vonWieser. __________

15. According to most mainstream economists, the Austrianbusiness cycle theory is incorrect. __________

EXERCISE 2

Identification. Identify each item below by referring to the following box which contains economic concepts and theories used in Austrian school of economic thought. Write the answer on the space provided for after the number.

16. _______________ is the study of human action.

17. _______________refers to investments of firms beingbadly allocated due to what they assert to be anartificially low cost of credit and an unsustainableincrease in money supply, often blamed on a centralbank.

18. _______________ is the theory that social phenomenacan only be accurately explained by showing how theyresult from the intentional states that motivate theindividual actors.

19. _______________ is the process whereby capitalgoods are produced first and then, with the help of thecapital goods, the desired consumer goods areproduced.

20. _______________ attempts to explain business cyclesthrough a set of ideas held by the heterodox AustrianSchool of economics.

21. _______________ pertains to a criticism of centraleconomic planning proposed by Ludwig von Miseswhich deals with the problem on how the resources aredistributed rationally in an economy.

22. _______________ is a concept that the free market ismore democratic than any democracy.


Lingayen Campus

WORKTEXT 8 : AUSTRIAN SCHOOL OF ECONOMIC THOUGHT Econ 126 – History of Economic Thought

NAME: _______________________________________ SCORE: ___________________________________


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zim://A/A/Laissez%20faire.html

zim://A/A/Laissez%20faire.html

zim://A/A/Spontaneous%20order.html

zim://A/A/Price%20mechanism.html

23. _______________ the idea that in decision-making,rationality of individuals is limited by the information theyhave, the cognitive limitations of their minds, and thefinite amount of time they have to make a decision.

24. _______________emphasizes free markets and privateproperty and individual choice.

25. _______________ is an economic theory of value thatidentifies worth as being based on the wants and needsof the members of a society, as opposed to value beinginherent to an object.

EXERCISE 3

Identification. Identify the magnum opus of the following Austrian school economists. Write the answer in the blank provided after the number.

26. Ludwig von Mises____________________________________________

27. Friedrich Hayek____________________________________________

28. Carl Menger____________________________________________

29. Friedrich von Wieser____________________________________________

30. Eugen von Böhm-Bawerk____________________________________________

31. Richard Ebeling____________________________________________

32. Robert Higgs____________________________________________

33. Murray Rothbard____________________________________________

34. Benjamin Anderson____________________________________________

35. Frank Fetter____________________________________________

36. Henry Hazlitt____________________________________________

37. Ludwig Lachmann____________________________________________

38. George Selgin____________________________________________

39. Israel Kirzner____________________________________________

40. Robert P. Murray____________________________________________

EXERCISE 4


41. Ludwig von Mises

42. Friedrich Hayek

43. Carl Menger

44. Friedrich vonWieser

45. Eugen von Böhm-Bawerk

46. Richard Ebeling

47. Robert Higgs

48. Murray Rothbard

49. BenjaminAnderson

50. Frank Fetter

51. Henry Hazlitt

52. Ludwig Lachmann

53. George Selgin

54. Israel Kirzner

55. Robert P. Murphy

A B

C D

E F

G H

I J

K

L

M

N

O

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EXERCISE 5

Put a check mark (/) if the following economic ideas and propositions pertain to Austrian school of economic thought, otherwise, put an (X) mark. Write the answer on the space provided for.

56. The study of the market order is fundamentally aboutexchange behavior and the institutions within whichexchanges take place. ________

57. Utility and costs are subjective. ________

58. Private property in the means of production is anecessary condition for rational economic calculation.________

59. Only individuals choose. ________

60. Money is nonneutral. ________

61. Social institutions often are the result of human action,but not of human design. ________

62. Capital structure of economies consists ofheterogeneous goods that have multi-specific uses whichmust be aligned. ________

63. The competitive market is a process of entrepreneurialdiscovery. ________

64. Business cycles are caused by distortion in interest ratesdue to the government's attempt to control money.________

65. The price system economizes on the information thatpeople need to process in making their decisions.________

EXERCISE 6

Economic Thought. Identify the neoclassical economist credited for each of these economic thought and principles. Write your answer on the space provided for after the item.

66. He bases the value of productive resources on theircontribution to the final product, recognizing that changesin the amount used of one productive factor would alterthe productivity of other factors. __________________

67. He introduces and coins the economic conceptopportunity cost. __________________

68. He develops marginal-utility analysis into a theory ofprice. __________________

69. He emphasizes the role of time in determining the valueof goods. __________________

70. He views interest as the charge for the use of capital—acompensation to the owner for abstaining from presentconsumption. __________________

71. He argues that the pricing systems in socialisteconomies are necessarily deficient because ifgovernment owned or controlled the means ofproduction, then no rational prices could be obtained forcapital goods. __________________

72. He accounts how changing prices communicateinformation which enables individuals to coordinate theirplans. __________________

73. He asserts that inflation only results when the supply ofmoney outpaces demand for money.__________________

74. He advocates the idea that malinvestment occurs due tothe combination of fractional reserve banking andartificially low interest rates misleading relative pricesignals. __________________

75. Hayek argues that the business cycle resulted from thecentral bank's inflationary credit expansion and itstransmission over time, leading to a capital misallocationcaused by the artificially low interest rates.__________________

76. He posits that a central planning authority would have tobe endowed with powers that would impact andultimately control social life, because the knowledgerequired for central planning an economy is inherentlydecentralized. __________________

77. He argues that the price mechanism serves to share andsynchronize local and personal knowledge, allowingsociety's members to achieve diverse, complicated endsthrough a principle of spontaneous self-organization.__________________

78. He uses the term catallaxy to describe a "self-organizingsystem of voluntary co-operation. _________________

79. He explained that price signals are the only means ofenabling each economic decision maker tocommunicate tacit knowledge or dispersed knowledgeto each other, in order to solve the economic calculationproblem. __________________

80. He views the free price system not as a consciousinvention but as spontaneous order or what he referredto as "that which is the result of human action but not ofhuman design". __________________

81. He introduces praxeology as a more general conceptualfoundation of the social sciences. _________________

82. He establishes that economic laws are only arrived atthrough the means of methodological individualismfirmly rejecting positivism and materialism as afoundation for the social sciences. _________________

83. Mises argues that money is demanded for its usefulnessin purchasing other goods, rather than for its own sakeand that any unsound credit expansion causes businesscycles. __________________

33

84. He argues that socialism fails economically because ofthe economic calculation problem. _________________

85. He discusses in his theory of roundaboutness and that aredistribution of profits from capitalist industries willundermine the importance of the interest rate as a vitaltool for monetary policy. __________________

EXERCISE 7

Timeline Activity. Arrange the following events or actions chronologically relating to history of the Austrian school of economic thought. Indicate A as the first event and J is the last event.

86. The term opportunity cost is coined in Friedrich vonWieser's most famous the ‘Alternative Cost Theory’.________

87. Austrian economist Ludwig von Mises raised afundamental objection, claiming that planning undersocialism was impossible. ________

88. The Austrian school of economics was founded in withthe publication of Carl Menger’s Principles of Economics.________

89. Böhm-Bawerk's Positive Theory of Capital elaborates onthe economy's time-consuming production processesand of the interest payments they entail. ________

90. Friedrich Hayek shows that a complex economy cannotbe rationally planned because true market prices areabsent. ________

91. Austrian economist Ludwig von Mises argues thatempirical methods cannot be applied to social sciences.________

92. Economist Bryan Caplan argues that Austrianeconomists have often misunderstood moderneconomics, causing them to overstate their differenceswith it. ________

93. Economist Steve H. Hanke identifies the 2007-2010Global Financial Crises as the direct outcome of theFederal Reserve Bank's interest rate policies as ispredicted by the Austrian business cycle theory.________

94. By the mid-1930s, Austrian economics was ill-thought ofby most economists because it rejected mathematicaland statistical methods in the area of economics.________

95. Milton Friedman examines the history of business cyclesin the U.S., and concludes that the Hayek-Misesexplanation of the business cycle is contradicted by theevidence. ________

EXERCISE 8

Essay. Briefly explain the following.

96. Explain the main ideas of the Austrian school and theirdifferences with other schools of economics as regardsto business cycle, inflation, capital, opportunity costand economic calculation problem.________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

97. Explain the commonalities and differences betweenAustrian school and neoclassical economics.________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

98. Explain why Austrian economists differ mostsignificantly from other schools of economic thought interms of methodology.________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

99. According to Ludwig von Mises, socialism must fail, asdemand cannot be known without prices.________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

100. Discuss the general criticisms made by othereconomists or schools to Austrian school of economicthought.________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

34

zim://A/A/Bryan%20Caplan.html

EXERCISE 1

True or False. Write True if the statement is correct and False if it is incorrect. Write your answer in the blank provided for.

1. Keynesian economics is a school of economic thoughtbased on the ideas of 20th-century American economistJohn Maynard Keynes. _______

2. The central tenet of Keynesian school of economicthought is that government intervention can stabilize theeconomy. _______

3. Keynesian economics was developed during the 1930sin an attempt to understand the Great Depression.

4. According to Keynesian economics, state intervention isnecessary to moderate the booms and busts in economicactivity, otherwise known as the product cycle. _______

5. Macroeconomic theories dominate Keynesianeconomics. _______

6. According to Keynes, the solution to unemployment wasa growth in government spending. _______

7. John Maynard Keynes is regarded as the founder ofmodern macroeconomics. _______

8. Keynes argues that inadequate overall demand couldlead to prolonged periods of high unemployment. ______

9. Keynesian economics argues that private sectordecisions lead to inefficient macroeconomic outcomes._______

10. If government spending increases, for example, and allother spending components remain constant, then outputwill decrease. _______

11. Keynesian economics supports a mixed economy guidedmainly by the private sector but partly operated by thegovernment.

12. Keynes argued that inadequate overall demand couldlead to prolonged periods of high unemployment. ______

13. In the short run, economy’s output is influenced byaggregate demand. _______

14. Autonomous consumption represents consumption whenincome is zero. _______

15. New Keynesian economics strives to providemicroeconomic foundations for Keynesian economics._______

EXERCISE 2

Crossword Puzzle. Complete or fill in the missing letters in the following puzzle by identifying the key concepts in Keynesian economics below.

1 C O E C N M I 2

U L N 3 L C E N I

I O 4 M L O M N

U S 6 N E E 5

T I F N I O 7 A 8

G 9 E V U S I L H R

G T E E M N 10 R O S

C D R P T E M D 11

I C I N D 12 V G

O 14 Y I L P L C 13

E 15 L N E F R E

16. A branch of economics concerning with the performanceand structure of the economy as a whole.

17. The periodic but irregular up-and-down movement inproduction and economic activity.

18. A persistently rise in the general price level of prices ofgoods and services in an economy over a period of time.

19. A condition in the economy when people are withoutjobs and they have actively sought work within the pastfour weeks.

20. A business cycle phase characterized by generalslowdown in economic activity or in which real GDPdecreases.


Lingayen Campus

WORKTEXT 9 : KEYNESIAN ECONOMICS Econ 126 – History of Economic Thought

NAME: _______________________________________ SCORE: ___________________________________


35

21. It is the relationship between consumption expenditureand disposable income, other things remaining the same.

22. It is the pecuniary burden laid upon individuals orproperty owners to support the government.

23. The inverse relationship between the rate ofunemployment and the rate of inflation in an economy.

24. The total demand for final goods and services in theeconomy at a given time and price level.

25. The market value of all final goods and services producedwithin a country during a given time period.

26. A weighted average of prices for a given class of goodsor services in a specific period of time.

27. The amount of income that is not paid in taxes or spenton consumption goods and services.

28. An economic policy which uses taxation and governmentexpenditure to influence the economy.

29. Any object that is generally accepted as means orpayment for goods and services.

30. The difference between the value of exports and thevalue of imports of an economy over a certain period.

EXERCISE 3

Put a check mark (/) if the following economic ideas pertain to Keynesian economics, otherwise, put an (X) mark. Write the answer on the space provided for.

31. Aggregate demand is influenced by many economicdecisions made by public sector and private sector._________

32. Mixed economy is advocated which is predominantlydominated private sector, but with a significant role ofgovernment or public sector. _________

33. The interaction of aggregate demand and aggregatesupply determines the level of output and employment inthe economy. _________

34. Supply creates its own demand. _________35. Money supply exerts a dominant influence on the

economy. _________36. Economy exists in a state of general equilibrium.

_________37. Economic resources are allocated according to the

desires of individuals and businesses in the marketplace._________

38. Prices, and especially wages, respond slowly to changesin supply and demand, resulting in periodic shortagesand surpluses, especially of labor. _________

39. Government spending can be used to increaseaggregate demand, thus increasing economic activity,reducing unemployment and deflation. _________

40. The role of monetary authority in controlling the amountof money in circulation for stability and growth isemphasized. _________

EXERCISE 4

Picture Match. Match these economists with their respective profile picture. Write the letter of you answer in the blank provided before the number.

41. John MaynardKeynes

42. Joan Robinson

43. Paul Krugman

44. Richard Kahn

45. John Hicks

46. Peter Bofinger

47. Joseph EugeneStiglitz

48. Alvin Hansen

49. Paul Samuelson

50. Robert Barro

51. Michal Kalecki

52. Abba P. Lerner

53. Nicholas Kaldor

54. Hyman Minsky

55. James Meade

56. Edmund Phelps

57. Robert R. Gordon

58. John B. Taylor

59. William Phillips

60. Franco Modigliani

A B

C D

E F

G H

I J

K L

M N

O P

Q R

S T

36

EXERCISE 5

Identification. Identify the magnum opus of the following Keynesian economists. Write the answer in the blank provided after the number.

61. John Maynard Keynes __________________________

62. Joan Robinson ________________________________

63. Paul Krugman ________________________________

64. Richard Kahn _________________________________

65. John Hicks ___________________________________

66. Peter Bofinger ________________________________

67. Joseph Eugene Stiglitz __________________________

68. Alvin Hansen _________________________________

69. Paul Samuelson _______________________________

70. Robert Barro ________________________________

71. Michał Kalecki ________________________________

72. Abba P. Lerner ________________________________

73. Nicholas Kaldor _______________________________

74. Hyman Minsky ________________________________W

75. James Meade _________________________________

76. Edmund Phelps _______________________________

77. Robert R. Gordon ______________________________

78. John B. Taylor ________________________________

79. William Phillips ________________________________

80. Franco Modigliani ______________________________

EXERCISE 6

Economic Thought. Identify the neoclassical economist credited for each of these economic thought and principles. Write you answer on the space provided for after the item.

81. Consumption function __________________________

82. Marginal efficiency of capital _____________________

83. Liquidity preference ____________________________

84. Multiplier _____________________________________

85. IS-LM model __________________________________

86. Philipps curve _________________________________

87. Life cycle hypothesis ___________________________

88. Baumol's cost disease __________________________

89. Aggregate Demand-Aggregate Supply mode

90. Effective demand Mark-up ______________________

91. Profit equation _______________________________

92. Lerner Index _________________________________

93. Minsky moment _______________________________

94. Natural rate of unemployment ___________________

95. Golden Rule savings rate ______________________

96. Core inflation ________________________________

97. New Trade Theory ____________________________

98. Heckscher–Ohlin theorem ______________________

99. Revealed preference __________________________

100. Monopsony __________________________________

EXERCISE 7

Timeline Activity. Arrange the following events or actions chronologically relating to history of Keynesian Economics. Indicate A as the first event and J is the last event.

101. The Wall Street Crash (a dramatic fall in the value ofstocks and shares in the US) marks the beginning of theGreat Depression. _________

102. British economist Richard Kahn sets out an explicittheory to explain the multiplying effects of governmentspending suggested by John Maynard Keynes._________

103. Friedrich Hayek argues that state interference ineconomies is wrong and will ultimately lead torepression. _________

104. Lionel Robbins formulates his definition of economics as“the science of scarce resources”. _________

105. Karl Polanyi challenges traditional economic thought byapproaching economics from a cultural perspective._________

106. John Maynard Keynes writes an open letter to PresidentRoosevelt in The New York Times, recommendinggovernment spending to kick-start the economy._________

107. John Hicks describes the ISLM model, mathematicallymodeling the Keynesian multiplier. _________

108. Keynes publishes The General Theory, setting out hisapproach to macroeconomics and the vital role of thestate in the economy. _________

109. Simon Kuznets identifies business cycles and lays thefoundations for the field of development economics._________

110. World War II ends and a period of economic rebuildingbegins. _________

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zim://A/A/IS-LM%20model.html

zim://A/A/Lerner%20Index.html

EXERCISE 8

Essay. Explain the following pertaining to Keynesian economics.

111. Identify and explain the three principal tenets in theKeynesian description of how the economy works.

________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________

112. Compare the different approach of classical economicsand Keynesian economics to the economic study ofmonetary policy, consumer behavior and governmentspending.

________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________

113. Describe the two key theories of mainstream Keynesianeconomics namely IS-LM model and the Phillips curve?

________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________

114. Explain this economic statement of John MaynardKeynes: “By a continuing process of inflation,government can confiscate, secretly and unobserved, animportant part of the wealth of their citizens”.

________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________

115. Expound the economic concept of Keynesian multiplierwhich says that government spending boosts theeconomy by more than what is spent.

________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________ ________________________________________________

116. Explain using graphical and mathematical model whyKeynes argues that increased government expendituresand lower taxes stimulate demand and pull the globaleconomy out of recession.

_______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________

117. Explain the significant contribution of Keynesianeconomics as an economic model during the latter partof the Great Depression, World War II, and the post-wareconomic expansion (1945–1973).

_______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________

118. Cite the reasons why there was a resurgence of interestin Keynesian economics among policy makers in theworld's industrialized economies in 2008 and 2009.

_______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________

119. Discuss the commonalities and differences of Neo-Keynesian economics, New Keynesian economics, andPost-Keynesian economics.

_______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________

120. Discuss the criticisms made by the other schools ofeconomic thought particularly monetarist andneoclassical economics.

_______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________

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TABLE OF CONTENTS

A. BOOKS AND E-BOOKS

Backhaus, Jurgen Georg, HANDBOOK OF THE HISTORY OF ECONOMIC THOUGHT, Springer, New York, 2012.

Backhouse, Roger E., THE ORDINARY BUSINESS OF LIFE: A HISTORY OF ECONOMICS, Princeton University Press, New Jersey, USA, 2002

Barber, William J. A HISTORY OF ECONOMIC THOUGHT, Wesleyan University Press, Toronto Canada, 2007

Colander, David C., HISTORY OF ECONOMIC THOUGHT, 4th Edition, Houghton Mifflin Company, 2002. Davis, John B., A COMPANION TO THE HISTORY OF ECONOMIC THOUGHT, Blackwell Publishing, MA, USA, 2003

Harry Landreth, et. al. HISTORY OF ECONOMIC THOUGHT. South-Western College Publication, New York, 2011

Heilbrone, Robert, et. al., THE WORLDLY PHILOSOPHERS, Penguin Books, New York, USA 1999

Kurz, Heinz and Salvadori, Neri, CLASSICAL ECONOMICS AND MODERN THEORY, Routledge Taylor and Francis Group, New York, USA, 2003

Robbins, Lionel, A HISTORY OF ECONOMIC THOUGHT, Princeton University Press, USA, 2000 Robinson, Joan, THE ACCUMULATION OF CAPITAL, Palgrave Macmillan, USA, 2002

Schumpeter, Joseph A., HISTORY OF ECONOMIC ANALYSIS, Taylor & Francis e-Library, Great Britain, 2006.

Screpante, Ernesto and Zamagni Stefano, AN OUTLINE OF THE HISTORY OF ECONOMIC THOUGHT, Oxford University Press, Great Britain, 2005

Yaffe, Helen, THE ECONOMICS OF REVOLUTION, Palgrave Macmillan, USA, 2004

B. ELECTRONIC SOURCES

http://digamo.free.fr/backhaus122.pdfhttp://economics.uwo.ca/people/laidler_docs/theroleof.pdfhttp://en.wikipedia.org/wiki/History_of_economic_thoughthttp://library.mises.org/books/Gene%20Callahan/Economics%20for%20Real%20People.pdf http://library.mises.org/books/Israel%20M%20Kirzner/Economic%20Point%20of%20View%20A%20Essay%20in%20the%20History%20of%20Economic%20Thought.pdfhttp://mises.org/Literature/Subject/15/The-History-of-Economic-Thoughthttp://modernecon.org/wp-content/uploads/2012/12/history-of-thought-Final-print-book-3.pdf http://snap3.uas.mx/RECURSO1/pensamiento%20economico/TEXTOS/THE%20History%20of 20Economic%20Thoght%20(cepa).pdfhttp://www.eatonak.org/EC402/downloads-3/files/Barber.pdfhttp://www.wiwi.uni-jena.de/Makro/lehre/AES/hist_pres.https://is.vsfs.cz/el/6410/zima2012/BA_ETD/um/www.wikipedia.com

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TABLE OF CONTENTS HISTORY OF ECONOMIC THOUGHT

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