Using this theory, international trade allows both countries to enjoy more of the both goods. Countries rather do this, then produce only for domestic consumption and don’t trade. Ricardo also mentioned that when a company finds an competitive business, of course they will try to block each other before they access the trade world. Theory of Adam Smith Adam Smith is often seen as the father of the economic. He developed a lot of theories about markets, that we still use it, as a standard theory. He was born in 1723 in a place called Kirkcaldy, Fife, Scotland.
Adam Smith was a Scottish political, economist and philosopher; he became famous for his influential book “The Wealth of Nations” written in 1776. The Wealth of Nations (it was actually called ‘An Inquiry into the Nature and Causes of the Wealth of Nations’) was his main work. He wrote five books about that subject. The books are all about the division of labor (specialization) and their needs, and about the workings of the market mechanism (the price system). Mr. Smith argued that the markets would guide economic activities and act like invisible hand (with this he means the operations of market forces) allocating resources. Like the prices.
Prices would rise when there is for example a shortage of some products, like grain. Or the prices could fall, like when the demand of that product is low. Markets forces ensured the production of the right goods and services. This is because, like every other businesses, the producers would like to make profits by providing them. Without the government intervention, public well-being would increase from competition when they organizing products to suit the public. With competition both businesses need to compete each other, this would be lowering their prices to their lowest possible levels or increase their products (quality) etc.
If there wasn’t enough competition, this would mean that producers would make more profits. But this will attract other companies to join the industries. All of this, it is a benefit for the consumer. With this system it has two requirements. One was that the marker needed to be free of government intervention, and the other was that there had to be a competition. Smith recognized the danger of monopoly: “A monopoly is either to an individual or to a trading company. The monopolists keep the market constantly under-stocked.
They do this by never fully supplying the effectual demand, sell their commodities (much more above their natural price) and raise their emoluments (consist of wages or profit) above their natural rate. ” It is quite clear why Smith says that the moral norms are necessary for a system to work. People must have a good access to information about the products and services available, and the rule of law must hold. Here is a famous and oft-quoted passage of ‘the Wealth of Nations’: “He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it.
By preferring the support of domestic to that of foreign industry, he intends only his own security; and 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. ” About the ‘Invisible Hand’ The ‘invisible hand’ is a frequently theme from the book, ‘Wealth of Nations’. The idea behind the invisible hand is, on one level, which people benefits the community around them.
They do this by simply acting in their own self-interest, without conscious regard to the community service. In other words, self-interest equates general interest. The invisible hand is mostly involved with the free market. The free market is about the possible freedom for the buyers and sellers to exchange their goods, which will leads to an increased economic growth. Adam Smith assumed that consumers choose the lowest price for their products and entrepreneurs choose the highest rate of profit. By an insufficient demand (through market prices), consumers will ‘direct’ the entrepreneurs investment money to the most profitable industry.
A positive market-based economy aspect is that it forces people to think about what other people want. Smith saw that this was a good part about the invisible hand mechanism. He identified two ways to obtain the help and cooperation of other people. First is to appeal to the benevolence and goodwill of others. And the second way is to appeal instead to other people’s self-interest. A quote about the ‘invisible hand’: “Every individual necessarily labors to render the annual revenue of the society as great as he can.
He generally indeed neither intends to promote the public interest, nor knows how much he is promoting it. 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. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. ” E2. A full description of the export activities of the business and a straightforward classification of the stage of international trade
Gemos Flower BV is a medium-sized company that specializes in exporting flowers to wholesalers all over the world. There is only one establishment all over the world, which is Honselersdijk in the Netherlands. They cooperate with the Flower Auction Holland, one of the major flower auctions in Holland. Gemos was established in 1984 by Gerrit Voogd, who still owns the business. In the beginning the business only exports to England and Germany. But now, 20 years later, we export our products to different countries all over the world.