EC 12 Pointers

Additional FAQs on Chapters 6-7 of Backhouse

  1. According to David Hume, why is manufacturing valuable? Could this view apply as well to agriculture? Discuss.
  1. In Adam Smith’s works, what did he consider as duties of government, which could not be relegated to the working of the market system or the Invisible Hand?
  1. Who invented the law of diminishing marginal utility?
  1. Who was the first to use a diagram to explain how demand and supply determine the market price?


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HW Assignment Due September 1, 2015

Read Chapters 6 and 7 of Backhouse, taking into account the pointers given on this website.

Please turn in, by email, answers to the following questions in the pointers:

Pointers No. 5: Nos. 1, 3, 4, 5, and 10.

Pointers No. 6: Nos. 4, 7, 8, 11, and 12.

Please bring at least two hard copies of your answers when class resumes on September 1.

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EC 12. Pointers No. 6

FAQ on Backhouse, Ch. 7 – Classical Political Economy

  1. Backhouse states that Adam Smith’s work was essentially “moral philosophy,” and not economics as the modern textbooks would have it. How did Backhouse define moral philosophy?
  1. Backhouse characterized political economy as having a “scientific” character. What did he mean by the “scientific character”?
  1. Backhouse states that Thomas Malthus and the followers of Jeremy Bentham were Whigs. Who or what were the Whigs? What did they stand for? (Note: The answer is in standard dictionaries).
  1. In Malthus’s theory of population, what are the three events that could contain or limit the growth of population? Which of these three is the most important, and why? Relate this issue to present-day problems of the Philippines.
  1. What was the defining theme of Ricardian economics?
  1. What are the two key propositions of Ricardian economics? On what three basic arguments or “pillars” did David Ricardo rely?
  1. What is the Iron Law of Wages that is attributed to David Ricardo?
  1. Say’s Law states that supply creates demand. Explain.
  1. How did J. S. Mill distinguish socialism from communism?
  1. List at least three situations wherein, in Mill’s view, the doctrine of laissez-faire will not work. Why would laissez-faire not work?
  1. How did Marx explain the “low” wages of workers?
  1. What did Marx see as the main driving force that produces the business cycle of expansion-crisis-recession?
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Missing the point


is the name of the game.  No?

Go read Deirdre’s review of Piketty’s tome.

If you got it, good for you.  If not, you will probably believe Keynes and go the way of the fatal conceit.



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EC 12. Pointers No. 5

FAQs on Ch. 6 of Backhouse – The Scottish Enlightenment of the 18th Century

  1. What is the Scottish Enlightenment? Who were the key figures in it who contributed to economic thinking? What did they contribute?
  1. Summarize Mandeville’s Fable of the Bees.
  1. How did Adam Smith define “moral rules”?
  1. What was the historical context of Smith’s book on The Wealth of Nations?
  1. According to Smith, what is the most important cause of economic growth?
  1. What are the three concepts behind Smith’s theory of value?
  1. How did Smith define “natural price”?
  1. How did Smith define “liberty”?
  1. According to Smith, what are the three duties of government?
  1. How did Smith argue that unemployment would not exist?
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EC 12. Pointers No. 4 (How to write a term paper)

The Concepts of Economics

The following materials are suggestions from me on term paper topics for EC 12. Please feel free to explore.

When you have chosen a topic, you should research the literature (from the list given in the course syllabus). Then you should send me a submission by email of your proposal on how you would write your term paper.

Since this is a class on history of economic thought, the typical structure of the paper is one that attempts to explain, in plain language, a concept (or a few related ones) in economics. You can start with a textbook explanation that may be incomprehensible (“nosebleed”), then go on to trace from where the concept began in economics — who said what, exactly how did he say it, etc. Your own contribution will be an illustration or concrete explanation of the concept, or a critique of the concept’s usefulness, using your own words, and preferably using examples from the setting of the Philippine economy. For this contribution, it will be good to test your work for comprehensibility by your peers. Given this structure, I encourage group work, but not more than three can collaborate.

I imagine that the term paper process will take four stages. The first stage is the proposal. I will then react and give you, individually, pointers on how to refine your proposal, such as narrowing or widening, or deepening, its scope.

The second stage is where you would submit the likely sources, or raw materials, of your paper. It may consist of your preliminary ideas or questions that your paper will address, together with the answers given by others in your research. This stage will mostly comprise “cut and paste” materials, where you would also cite the precise sources of these materials. I will then also give you comments.

The third stage is when you submit a first draft of the paper. I prefer short papers without “fillers.” I suggest that you aim for a final version that can fit only one page, perhaps not more than 700 words. I will comment on this first draft. Time permitting, the whole class should read and react to these first drafts.

Please note that the first draft is likely 90% the work of others, properly cited even if paraphrased. Your own thinking as a part of the paper is the remaining 10%. It may not be much, and that’s ok; the very least could be your comment as to what is the best answer, and why you think so.

You may realize that how you organize the 90% part is not easy, and you will be challenged. Your reader should not feel the nosebleed, and also not think that you’re recycling the literature without understanding it.

The final paper is your revision of the first draft based on your further work and in response to comments from me and the class on the first draft. You will be graded not only on the final product but also on how well you did the research.

The list

The following topics are fair game (but you may suggest your own topic):

Utility, cost, profit — how these are defined and used in economics
Inflation tax – when is it justified?
Comparative advantage
Opportunity cost and scarcity
Adam Smith’s Invisible Hand

Say’s Law
Gresham’s Law
The Iron Law of Wages
Nash Equilibrium
Occam’s Razor

Capital asset pricing model or CAPM
Neoclassical synthesis
Revealed preference
Social cost vs. private cost
The firm and transaction costs

The Law of Supply and Demand
Division of labor
Veblen goods, Giffen goods, inferior goods
Private vs. public goods
Unemployment and underemployment

Lucas Critique
Market failure
State capture and rent-seeking
Natural monopoly

Monopolistic competition
Winner’s Curse vs. Buyer’s Remorse
Creative destruction, including how monopolies disintegrate
Business cycle

Ponzi finance and the Minsky Moment
The American Question (as propounded by Deirdre McCloskey)
Buchanan’s theory of clubs
Marginal cost vs. average cost vs. sunk cost
Law of diminishing returns

Labor theory of value
Hayek and the Fatal Conceit
Keynes and the Liquidity Trap
Solomonic bargains
Keynes’ “animal spirits”
Tragedy of the commons

“Lemons” and asymmetric information
Rationality and market efficiency
Transversality and budget constraints
Accounting cost/profit vs. economic cost/profit
Income elasticity, price elasticity

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EC 12. Pointers No. 3

FAQs on Chs. 4 and 5 of Backhouse – England in 17th Century, France’s 18th Century

  1. The early ideas that became the foundations of political science or the scientific method are also important to economics. There were also contributions to economic data gathering and analysis from the 17th century. Summarize the ideas of: Thomas Hobbes (1588-1679); Francis Bacon (1561-1626); Rene Descartes (1596-1650); and Richard Petty (1623-87).
  1. What is Gresham’s Law on money? Explain.
  1. Richard Cantillon (1680-1734?) published a book (An Essay on the Nature of Commerce in General) which some scholars consider as marking the birth of economics. How did Cantillon defend his argument that the source of wealth was land and not labor? (Extra credit: What is the flaw in his argument? Hint: the answer is not given in Backhouse; you have to do some original thinking.)
  1. Summarize the economic thought of the French Physiocrats. Who were they, and why did they think as they did? In what way or ways were they clearly wrong? What did they contribute to economics that survive to today?
  1. How did Turgot (1727-81) define national wealth? What is the modern significance of this definition?
  1. Who are the two French economists who exerted an influence on Adam Smith? Extra credit: Explain. (This can be answered only after you have understood Smith’s contribution to economics.)
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