Free Market economic system - Essay Example

Free Market Economic System In a Free Market economic system, providers of land, labor and capital (LLC) are compensated for bringing their inputsto market. a) In each case, what are these compensations called? Answer: Land, labor and capital are known as factor of production in economy. Therefore, compensation for land is known as Rent, for labor is Wages and for capital is Interest. b) Who decides how land, labor and capital (LLC) will be combined, Answer: An entrepreneur is the one who decides how to combine land, labor and capital in order to gain profit and maximize his earnings.

These entrepreneurs can develop and produce new products on combining the three basic factors of production which include land, labor and capital. c) What is their (potential) reward for making these decisions? Answer: The reward of an entrepreneur lies in profit which he gains from combining these factors together. d) Finally, what determines the prices paid for LLC? Answer: The prices paid for LLC can be determined by the following factors: 1- Natural Factor will determine the price for Land.

2- Human Factor will determine the price for Labor. 3- Market Factor will determine the price for Capital. 2- How are the economic theories of Adam Smith (The Wealth of Nations , 1776) connected to the “globalized” business environments of the late 20th Century and the present? Answer: Our world is going through the second wave of globalization. However, during the time of Adam Smith the world was faced with the first wave of globalization and it was in its earlier stages. That time can be referred as British Empire.

As a result, this empire and the international stability let Adam Smith to develop his theories which revolved around the comparison of wealth shared between the different nations. Smith greatly disagreed with the system of British Empire that granted free hand to the specific companies to maintain their monopoly in the international trade for particular goods and industries. Smith believed that this inequality would limit the growth of production and market competition. However, there are some particular regions that have remained unaffected by globalization such as some parts of African villages.

They are self-sufficient in trading without any international trade agreements with other nations. Globalization has given rise to the international division of labor and resources, as well as it has helped the local markets to grow internationally (Cameron Weber). 3. The People’s Republic of China (PRC) and Hong Kong have been trading influences ever since the establishment of Hong Kong as a British colony a little over 100 years ago. While Hong Kong certainly reflects the broad cultural influences of its giant neighbor, what effect has this tiny territory had on the economic development of the PRC?

Answer: While Hong Kong certainly reflects the broad cultural influences of its giant neighbor, this tiny territory has greatly influenced the economic development of China in a positive way. The various diversified international economic relations with the other countries are greatly influenced by its interactions with Hong Kong. This tiny territory has played a vital role in opening the gates of Chinese economy to the international trade and inward investment. Hong Kong has helped China to gain secure inflow of goods within the state, maximize its capital, and enhance its services and to acquire technological advancement.

China has maintained a higher position in exporting a large number of its goods to Hong Kong as compare to Japan and USA. On the other hand, Hong Kong re-exports 92% of its goods to the third world countries which are exported from China (Gautam Sen). As a result, we can clearly observe a strong economic integration between the two countries. Works Cited: Weber, M.., C. “Adam Smith and Globalization.” (2008) http://cameroneconomics.com/smith.pdf Accessed online on 21st January, 2012.

Sen, Gautam. “Post-reform China and the International economy: economic change and liberalization under sovereign control.”International Relations, London School of Economics (2001). Accessed online on 21st January, 2012.