4.1.2 Concepts and Terms

a Scottish professor who wrote a book called The Wealth of Nations in 1776

He believed free competition between producers and sellers would result in better products and services, increased investment, and higher wages for all. Individuals working in self-interest would work to improve the common good.

a British economist whose ideas had a major effect on modern economic and political theory

Capitalism is an economic system characterized by private or corporate ownership of property, which focuses on the accumulation of wealth and competition in a free market.

the ability to produce a particular product at lower cost than another business or country

Comparative advantage means that no matter how good (or bad) the individual is at producing goods, he or she is always better at something than someone else is. Because the person can produce this one thing by giving up less than others give up, he or she can sell it or trade it to others. The idea of comparative advantage is that people and nations can benefit from specialization and exchange.

the process of removing rules and restrictions on a particular industry

According to those who favour the free market, deregulation should increase competition, improve services, and decrease prices to consumers. However, regulations can benefit consumers and producers.

For example, the Province of Alberta deregulated the electricity industry. In theory, this allows more suppliers to provide electricity to customers, which according to the rules of supply and demand should have reduced the price to consumers. However, producers of electricity did not generate more energy, and costs to consumers have continued to increase to the extent that the government has provided rebates to electricity consumers and has established a maximum on the prices that can be charged.

the ability of people to trade with people in other countries without restrictions imposed from governments or other agencies

This can include:

international trade of goods and services without tariffs
free movement of labour between countries
free movement of capital between countries
the absence of taxes, subsidies, regulations, or laws that give domestic companies advantage over foreign companies

an international lending institution established with the World Bank in 1944 at Bretton Woods to help nations overcome the economic problems caused by World War II

More recently, the IMF has become more involved with its member countries to provide advice, debt restructuring, and short-term loans. It has had an important role in helping developing countries deal with their debt issues, often through the use of conditionalities in which the loan or debt restructuring will occur only if the country agrees to implement certain reforms of their economic systems.

an international body whose purpose is to promote free trade by persuading countries to abolish import tariffs and other barriers.

WTO is the only international agency overseeing the rules of international trade. It polices free-trade agreements, settles trade disputes between governments, and organizes trade negotiations.

the concept that a community is improved by individuals acting in  self-interest

In his book, The Wealth of Nations, Adam Smith claimed that individuals acting in their own best interests promote the good of their community. This concept is important in the development of capitalism.