PRINCIPLES OF MACROECONOMICS

Adam Smith, who wrote The Wealth of Nations, is seen as the father of modern economics. Prior to writing The Wealth of Nations, he wrote The Theory of Moral Sentiment. In this first book, he argued that society would be better off if people were not so selfish and were more considerate of others.  Smith also argued that, when they are born, most people were similarly talented.  Thus, differences in individual abilities, and hence productivity, are largely the effect of division of labor rather the cause of division of labor.

Questions: A. Is economic reasoning compatible with Smith’s assertion that society would be better off if people were more considerate of others? B. Is Smith’s theory that most people are born similarly talented and that differences in ability are the result of division of labor accurate?  Why or why not?  (Think about how his theory supports/opposes comparative advantage.)  Be sure to provide real-world cost-benefit example to support your responses. Consider decisions you make daily or decisions you make regarding family, etc. Understanding the role of cost-benefit analysis is easier when you apply it to personal decisions.