Adam Smith and the Free Market
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This paper examines Adam Smith's economic theories about supply and demand and applies them to wages. It considers the various salaries in different segments of society and explores what makes some higher than others. Additionally, the paper discusses the amorality of the market which is precisely what allows the forces of the market to impact the wages of all professions. The paper also notes irrationality which may drive up salaries in certain professions.
From the Paper:"Supply and demand is perhaps the most fundamental of these principles. At its essence, the principle of supply and demand is that in a free market each will tend towards an equilibrium point. The price at the equilibrium point is the natural price of the good, under free market conditions. If the price rises, demand will fall. This will bring supply down to the new equilibrium point in order to match the lower level of demand. If the price increases, more people will want to produce the good, bringing new supply, which will rise until it meets demand at the new equilibrium point."
"In general, the more scarce a good is, the more valuable it becomes. The perceived inequity of the schoolteacher/actor scenario illustrates this point. The schoolteacher provides a valuable service, but the skills required are low. Thus, there are many schoolteachers. There is a high demand, but many people exist who can fill this demand. This sets the equilibrium point at a low price level. Conversely, there are few Hollywood superstars, a function of their highly specialized skills. There is, however, high demand for Hollywood superstars since a proven star can increase the gate receipts for a movie..."
Sample of Sources Used:
- Smith, A. (1776). An inquiry into the nature and causes of the wealth of nations. Public domain.
- No author. (2009). Economics basics: Demand and supply. Investopedia. Retrieved November 12, 2009 from http://www.investopedia.com/university/economics/economics3.asp
- The Economist. (no date). Utility. The Economist. Retrieved November 12, 2009 from http://www.economist.com/RESEARCH/ECONOMICS/alphabetic.cfm?letter=U
- Krugman, P. (1998). The living wage. Paul Krugman. Retrieved November 12, 2009 from http://www.pkarchive.org/cranks/LivingWage.html
- Pongracic, I. (2004). Government fuels the drive to outsource. The Free Market. Retrieved November 12, 2009 from http://mises.org/freemarket_detail.aspx?control=499
Cite this Analytical Essay:
Adam Smith and the Free Market (2012, June 11) Retrieved May 25, 2013, from http://www.academon.com/analytical-essay/adam-smith-and-the-free-market-151475/
"Adam Smith and the Free Market" 11 June 2012. Web. 25 May. 2013. <http://www.academon.com/analytical-essay/adam-smith-and-the-free-market-151475/>