1. What was mercantilism?
Mercantilism was an economic system from the sixteenth to eighteenth century that stated that the wealth of a nation can be measured by its possession of precious materials such as gold or silver. Theoretically, the ideal form of mercantilism was represented by a nation that never imported and only exported in return for capital and the consequent build-up of wealth. However, this was not practically possible as one nation’s gain represented another nation’s loss. Thus, nations tried to ensure favourable trade balances in order to ensure a net gain in wealth. (wiseGEEK, 2013)
2. What is classical economics? What is the invisible hand?
Classical economics is a school of economic thought which stresses that economies will function most efficiently in an environment of open competition free from any government regulation. The ‘invisible hand’ is a term which was coined by Adam Smith to describe the natural force that guides capitalist markets through competition for scarce resources. It also emphasizes that no regulation of any type should exist during the exchange of goods and services since the invisible hand is meant to guide market participants to trade in the most mutually beneficial manner. (InvestorWords, 2013)
3. What is neoclassical economics?
Neoclassical economics was developed in the nineteenth century as a successor to the ideas of Adam Smith (Classical Economics). It is an approach that focuses on supply and demand of goods and services and it puts an emphasis on mathematical techniques as it is analytical with respect to supply, demand and market equilibrium. Neoclassical economics assumes that individuals have rational preferences while competing for scarce resources, consumers seek utility, firms seek to maximize profit and individuals act independently on the basis of relevant information. (wiseGEEK, 2013)
4. What is the market failure school?
The market failure school is a branch of neoclassical economics...