Sample Economics Essay

Question

1. Describe the major economic ideas of at least two of the schools of economic thought that were described in class. Be sure to include:
a. a general description of the school
b. at least one major economist belonging to that school
c. at least two specific ideas that belong to that school
d. your informed view or analysis of the school’s beliefs
7. Explain the impact which fluctuations in exchange rates can have on the balance of trade. Be specific in your answer.

Answer

Economics Essay question

Question 1

Classical School of Thought

The classical school of thought was proposed by Adam Smith. Its main idea is centered on the need for market freedom as a way of adjusting itself against forces like price and cost of production without government interference. It strongly puts emphasis on the efficiency of the free market for overall economic development. At the macroeconomic level, classical economic argues that the market full-employment level of output will be realized through its self-adjustment. Therefore, according to classical thought, the market is free and only price mechanisms can adjust it.

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Neo-Classical School of Thought

In contrast, the neoclassical school emerged due to the work of William Jevons, Carl Menger, and Leon Walras. It attempts to derive rules of corporate and consumer behaviors in the market. It is based on the view that consumers seek to maximize the satisfaction they get from a product or service and firms strive to realize maximum profits. These different objectives bring about the demand and supply forces that control the markets. Similarly, this school brought about the idea of the additional value one can get from a product or service acquired, for example, marginal utility, marginal cost and marginal revenue. Finally, this school idea also promotes the view that a market cannot operate alone without the help of economic agents.

Question 7

Fluctuations in exchange rates may have a positive impact on the balance of trade by promoting economic vibrancy in the international markets. When for example U.S. dollar becomes stronger compared to foreign currencies, US importing companies may be in a better position to buy more foreign currencies for use in their trade activities. The prices of the goods they want to import appear to be cheaper than before and therefore, these companies are able to acquire them in bulk at low prices for sale in the United States and in other markets. The converse is true in situations when the U.S. dollar becomes weak.

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