ECON 307

In Class Exercise Eight - Smith's Economics - Division of Labor and Economic Growth

1. What does Smith assume about human nature?

2.  How did Smith define the wealth of a nation?

3. What are the three reasons Smith attributes to a productivity increase from division of labor?  Explain each.

4.  The division of labor is limited by the extent of the market.  What does this mean?  The division of labor (and labor in general) is also limited by the amount of capital - what did Smith mean by this?

5.  The division of labor causes interdependency.  This was not a problem to Smith - why? 

6.  According to Smith, government regulation can divert capital and labor into directions they otherwise would not have gone.  Why did Smith say this is not a good thing for society overall?

7.  Do you have any other questions over this material?