-resource development: the study of how to increase resources and the creation of the
conditions that will make better use of those resources. ex. Recycling
-Adam Smith: Adam Smith was one of the first people to imagine a system for creating
wealth and improving the lives of everyone. Rather than believing that fixed resources had
to be divided among competing groups and individuals, Smith envisioned creating more
resources so that everyone could become wealthier. The year was 1776. Adam Smith’s book
An Inquiry into the Nations and Causes of the Wealth of Nations (simply called The Wealth
of Nations) was later considered the foundation of the study and understanding of the newly
developing capitalist industrial society. Adam Smith believed that freedom was vital to the
survival of any economy, especially the freedom to own land or property and the freedom to
keep profits from working the land or owning a business. He believed that people will work
hard if they have incentives for doing so—that is, if they know that they will be rewarded.
He made the desire for improving one’s condition in life the basis of his theory. According to
Smith, as long as farmers, laborers, and business people (entrepreneurs) could see economic
rewards for their efforts (i.e., receive enough money in the form of profits to support their
families), they would work long hours and work hard. As a result of these efforts, the
economy would prosper—with plenty of foods and all kinds of products available to
-Invisible Hand: a phrase coined by Adam Smith to describe the process that turns self-
directed gain into social and economic benefits for all.
-Capitalism: an economic system in which all or most of the factor of production are
privately owned and operated for profit. Business people decide what to produce, how much
to pay workers, how much to charge for goods and services, where to sell these goods and
services, and so on. Capitalism is a common term to describe free-market economies. The
free market is one in which decisions about what to produce and in what quantities are
made by the market—that is, by buyers and sellers negotiating prices for goods and
services. Consumers (such as you and I) send signals to tell producers what to make, how
many, in what colors, and so on. We do that by choosing to buy (or not to buy) certain goods
and services. Prices are determined by supply and demand (market price the determined
price; also the equilibrium point between supply and demand).
Competition w/in free markets:
Perfect competition: the market situation in which there are many sellers in a
market and no seller is large enough to dictate the price of a product.
Monopolistic competition: the market situation in which a large number of
sellers produce products that are very similar but that are perceived by buyers as different.
Oligopoly: a form of competition in which just a few sellers dominate the
marketMonopoly: a market in which there is only one seller for a product or service
Benefits: with its competition and incentives—was a major factor in creating the
wealth that industrialized countries now enjoy. Free-market capitalism, more than any
other economic system, provides opportunities for poor people to work their way out of
poverty. The free market allows open competition among companies. Businesses must