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Fa-3 Economics

The 18th and 19th centuries saw the rise of influential economists whose theories established the foundations of modern economics. Adam Smith's landmark 1776 work "The Wealth of Nations" promoted the idea of free markets and the "invisible hand" and influenced classical economics. David Ricardo developed the theory of comparative advantage, arguing nations should produce goods with lower opportunity costs. Economists also explored supply and demand, price determination, elasticity, and economies of scale. Their theories of free markets, opportunity costs, price fluctuations, and falling production costs with scale continue to form the basis of modern economics.

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9 views2 pages

Fa-3 Economics

The 18th and 19th centuries saw the rise of influential economists whose theories established the foundations of modern economics. Adam Smith's landmark 1776 work "The Wealth of Nations" promoted the idea of free markets and the "invisible hand" and influenced classical economics. David Ricardo developed the theory of comparative advantage, arguing nations should produce goods with lower opportunity costs. Economists also explored supply and demand, price determination, elasticity, and economies of scale. Their theories of free markets, opportunity costs, price fluctuations, and falling production costs with scale continue to form the basis of modern economics.

Uploaded by

ravichandra dasari
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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The 18th and 19th Century Economists' Contributions to the Field of Economics

The 18th and 19th centuries are remembered in the annals of economic history for the rise
of significant economists whose theories established the foundation for contemporary
economic theories. Adam Smith, who is frequently referred to as the founder of modern
economics, is one of the notable individuals from this era. Smith's 1776 landmark work, "The
Wealth of Nations," significantly influenced the field and laid the groundwork for classical
economics.

Adam Smith promoted the idea of a free market in which people could pursue their own
interests and benefit society as a whole. He maintained that resources are distributed
effectively in a market that is driven by supply and demand, which is advantageous to
society as a whole. Smith used the metaphor of the "invisible hand" to explain how selfish
acts taken in a free market could unintentionally advance societal well-being.

The development of the opportunity cost theory was one of the major achievements of
economists in the eighteenth century. According to this theory, the cost of any decision
includes both the money spent and the value of the next best option that is given up.
Understanding opportunity cost is essential in a free market. Based on this idea, both
individuals and businesses make decisions by weighing the advantages of one option
against the opportunities lost with others.

Entering the 19th century, David Ricardo, another significant economist, developed his
theory of comparative advantage, which built upon the idea of opportunity cost. According to
Ricardo, a nation should focus on producing the goods in which it has a comparative
advantage (lower opportunity cost), even if it has an absolute advantage in producing all
goods. This theory gave advocates of free trade between countries the theoretical
groundwork to support efficiency and growth in the world economy.

Economists of the 19th century also made a substantial contribution to our knowledge of
price determination. During this time, John Stuart Mill, a well-known economist, explored the
idea of supply and demand, stressing how these forces interact to determine prices. A
fundamental tenet of classical economics is the law of supply and demand, which states that
prices increase when demand outpaces supply and decrease when supply outpaces
demand. This relationship directs resource allocation, which is critical in an economy with
free markets.

The theory of elasticity was another important idea studied in the 18th and 19th centuries.
Economists like Alfred Marshall were among the first to propose the concept of price
elasticity of demand, which measures how responsive the quantity demanded is to price
fluctuations. Businesses and policymakers can make more informed decisions about pricing
and taxation by having a solid understanding of elasticity.

Moreover, economies of scale—a theory in which production costs fall on average as output
rises—were explored by economists during this time. This realization emphasized the value
of effective production and inspired companies to grow, promoting development and
economic growth.
In summary, the contributions of economists from the 18th and 19th centuries, such as
Adam Smith, David Ricardo, John Stuart Mill, and Alfred Marshall, have had a significant
impact on the field of economics. The theories of free markets, opportunity cost, price
determination, elasticity, and economies of scale continue to form the foundation of modern
economic theories. By placing these theories in the historical and contemporary contexts, we
can gain a deeper understanding of the complex relationships that exist between economic
concepts and the world's economic systems. Adding more workers is all that is necessary to
raise GDP. According to Adam Smith's first theory, having more labor enter each process
can increase economic growth or production more than having one person handle every
task.

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