Economics becomes a science · 1770s–1920s
1776
Adam Smith's Wealth of Nations
Smith explains how markets, competition and specialisation create wealth.
Adam Smith described a pin factory where ten workers, each doing one step, made about 48,000 pins a day, far more than they could alone. He argued that prices set by competition guide people to produce what others want.
💡 Why it made sense then
Trade and industry were growing fast, and people wanted to understand what made some nations richer than others.
Ideas it gave us
- ⚖️ Economies of scale
Economies of scale are the cost savings a business gets as it grows: the average cost of each unit falls as it produces more.
- ⚖️ Supply and demand
Supply and demand is the model that explains prices: when more people want something than is available, its price rises; when more is available than people want, its price falls.
- 🏗️ Perfect competition
Perfect competition is a market with many sellers of an identical product, free entry and exit, and full information, so no one firm can set the price. Every firm is a price taker.
Practise with $10,000 in play money
Free. No real money involved.