What You Should Know for the First Test *

I. What the Test Covers

The first test covers material from:

• Class discussions
• Chapters II-IV of the Heilbroner book
• Bernard Mandeville, “The Grumbling Hive”
• Thomas Mun, England’s Treasure by Forraign Trade
• Adam Smith, Wealth of Nations, Book I, Chapter 1; Book III, Chapter 1; Book IV, Chapter 2;
• Frederic Bastiat, "Petition of the Candlemakers”
• David Ricardo, Principles of Political Economy and Taxation, Chapters 7 and 31

You should be able to explain:

• The reasons behind the rise of market economies
• The point of Mandeville’s “Grumbling Hive”
• Smith’s view of human nature, in Theory of Moral Sentiments
• Smith on saving vs. spending in Theory of Moral Sentiments and in Wealth of Nations
• The principles and policies of Mercantilism, as illustrated by Mun
• Bastiat’s identification of problems with Mercantilist “theory” and policy
• The differences between the Mercantilist conception of “wealth” and Adam Smith’s
• The Mercantilist view of monopoly vs. Adam Smith’s view of monopoly
• The source of a nation’s wealth, and causes of increasing wealth, according to Smith
• Adam Smith’s views on tariffs and free trade (under what conditions are tariffs acceptable? What problems do tariffs create?) How do Smith’s views compare to Mercantilism?
• David Ricardo’s views on comparative advantage, free trade and tariffs (what historical debate formed the background to Ricardo’s theory of trade?)
• David Ricardo’s general views on economic growth (would economic growth occur? Why or why not?)

II. The Format of the Test

            All questions will be (short) essay questions. There will be two types of questions.

            One type of question presents a passage from one of the texts we have read and asks you to identify the author of the passage, the title of the work in which the passage appeared, and the meaning of the passage. The passage may be a famous one or one that is not so well known but which presents an author’s well-known idea.

            A second type of question asks you to explain a particular economist’s view on a particular issue. This type of question may ask you to identify how defunct economists would respond to a modern situation or it may ask you to compare two or more of the defunct economists’ positions on a particular topic.

III. Examples of Old Test Questions

            Each of the questions below has appeared on a previous ECON 408 test.

1. For each of the following passages, identify the author of the passage, the title of the work from which the passage comes, and explain the meaning of the passage.

a. “What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom.”

b. “I am convinced that the substitution of machinery is very injurious to the interests of the class of laborers.”

c. “The ordinary means therefore to increase our wealth and treasure is by Foreign Trade, wherein we must ever observe this rule: to sell more to strangers yearly than we consumer of theirs in value.”

d. “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner but from their regard to their own self-interest.”

e. “Thus every part was full of Vice, yet the whole mass a Paradise.”

f. “The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment with which it is anywhere directed, or applied, seem to have been the effects of the division of labour.”

g. “The most advantageous method in which a landed nation can raise up artificers, manufacturers, and merchants of its own, is to grant the most perfect freedom of trade to the artificers, manufacturers, and merchants of all other nations.”

h. “Foreign trade, then, will be highly beneficial to a country, notwithstanding that the commodity imported by the country could be produced there with less labour than in the foreign country.”

i. “. . . every prodigal appears to be a public enemy, and every frugal man a public benefactor”

j. “And it is well that nature imposes upon us in this manner. It is this deception which rouses and keeps in continual motion the industry of mankind.”

k. “ . . . by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”

2. One of the major themes we have examined thus far is how various early economists thought about the nature and causes of a nation’s wealth and how to increase a nation’s wealth over time.

a. According to Mercantilists such as Thomas Mun, what constituted the wealth of a nation?

b. According to Mercantilists such as Thomas Mun, what should nations do to increase their wealth?

c. According to Adam Smith, what constituted the wealth of a nation?

d. According to Adam Smith, what were the sources of a nation’s wealth? That is, what did wealth depend on?

e. According to Adam Smith, what was (were) the source(s) of economic growth? That is, how could a nation become wealthier over time?

3. What role did pride, vanity, greed, and lust play in the economic analyses of Bernard Mandeville and of Adam Smith? Are pride, vanity, greed, and lust Good Things or Bad Things according to each of these writers? Explain.

4. Within the past year, the US has raised its tariff on imported steel. Explain whether Thomas Mun, Adam Smith, and David Ricardo would think that a tariff on imported steel is A Good Thing or A Bad Thing. Defend your answers.

5. Adam Smith’s ideas in The Wealth of Nations weren’t always exactly the same as the ideas he expressed earlier in the Theory of Moral Sentiments. Compare his views on saving and spending in the two works, and compare his use of the “invisible hand” in the two works.

6. The Wal-Mart retail chain has many opponents (Indeed, neighborhoods and in Los Angeles and New York City, as well as many rural towns in Vermont, have recently voted against the establishment of a Wal-Mart in their communities.) These opponents often argue that a Wal-Mart turns main streets into ghost towns by sucking business away from small retailers. Explain what Adam Smith would have said about Wal-Mart. Would he have agreed or disagreed with Wal-Mart’s critics?

*Disclaimer: This list is not necessarily 100% complete. You are in fact responsible for everything we have done in class thus far; everything is fair game for the test. The topics listed here are those that come to the instructor's mind most readily when thinking about the first test.