Classical Economic Theory Concepts

The video explores classical economic theory, focusing on Adam Smith's ideas from 'The Wealth of Nations'. It discusses the importance of efficiency and market forces in resource allocation, the role of supply and demand, and critiques of government intervention. The video also highlights assumptions and limitations of classical economic theory, such as perfect competition and the challenges of non-intervention by governments.

What is the primary focus of classical economic theory?

• Understanding consumer behavior

• Maximizing government control

• Analyzing market failures

• Resource allocation and efficiency

In what year was 'The Wealth of Nations' published?

• 1801

• 1789

• 1776

• 1750

According to Adam Smith, what regulates the market?

• The invisible hand

• Government policies

• Consumer preferences

• International trade

What happens when demand exceeds supply in a market?

• Prices decrease

• Profits decrease

• Prices increase

• Supply decreases

What is one of the negative effects of government intervention according to classical economic theory?

• Lower consumer prices

• Adverse effects on the economy

• Higher employment rates

• Increased market efficiency

Why are tariffs considered harmful in classical economic theory?

• They lower consumer prices

• They restrict free trade

• They increase competition

• They boost domestic production

What is a key assumption of perfect competition?

• Government intervention is necessary

• No single firm can influence the market

• Prices are set by the government

• All firms have different products

What must be true for perfect competition to exist?

• High barriers to entry

• Monopolistic control

• No restrictions on new producers

• Government regulation

What is a challenge for governments in a democracy regarding economic intervention?

• Maintaining high taxes

• Reducing unemployment

• Avoiding short-term economic fixes

• Increasing public spending

What is a potential consequence of government borrowing according to classical economic theory?

• Reduced government debt

• Increased consumer spending

• Higher future taxes

• Lower interest rates