Political Science 2211E Lecture 3: week 3

• School: Western University
• Department: Political Science
• Course: Political Science 2211E
• Professor: Adam Harmes

Document Summary

Lecture three: free market approach to economic policy. Free market: less regulated capitalism w less gov intervention. Decentralizedeconomic decision-making by firms and consumers rather than by gov. Believed to be more efficient than centralized command economy. Historically, capitalism is seen as more successful than communism - west vs rest. 1776 - wrote the wealth of nations. Invisible hand of market forces would automatically coordinate decentralized decisions. Even if every individual in economy is acting w their self interest, the sum total would be better for society as a whole - will add up best possible outcome. Formalized smith"s notion of invisible hand based on laws of supply and demand and price signals. Laws of supply/demand along expressed through price signals is what invisible hand actually is; tells ppl what to buy and what producers to make. Price is determined by where supply and demand meet. Price sends signals to producers (make more/less) and consumers (buy more/less)