Virtuous Cycle of Economic Expansion in Wealth of Nations
Adam Smith identified a virtuous cycle of economic growth, which is a positive feedback loop. This cycle begins with the prosperity generated by specialization, which in turn leads to an expansion of the market's extent. A larger market then makes it possible to have even greater specialization, which continues the upward spiral of economic expansion.
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Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Ch.1 Prosperity, inequality, and planetary limits - The Economy 2.0 Microeconomics @ CORE Econ
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Virtuous Cycle of Economic Expansion in Wealth of Nations
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An isolated community of 100 people subsists by having each family perform a wide range of tasks, including farming, fishing, and building their own shelters. A new, reliable transportation link is built, connecting the community to a large, densely populated mainland region. Based on the principle that specialization is constrained by the size of the trading network, which of the following outcomes is the most probable long-term effect on the community's economy?
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Based on the economic principle that the degree of occupational specialization is determined by the size of the market, match each community description with its most likely economic structure.
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Learn After
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In the described model of a self-reinforcing cycle of economic growth, the expansion of a market's size is considered a consequence of, but not a catalyst for, further increases in specialization.
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