Self-study
P1
David Warsh's book describes a great contradiction inherent in economic theory since 1776, when Adam Smith published . ███ ██████ ██ ████████ █████ █████ ██ ███ ████████ ███████ ███ ███ ███████ ███ ███ █████████ █████
Intro topic ·
Warsh's book about conflict between Pin Factory and Invisible Hand
Conflict was part of economic theory since Adam Smith's Wealth of Nations.
P2
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Pin Factory ·
Increased efficiency through increased size
Pin factory's employees can make more by specializing on narrow tasks.
Invisible Hand ·
Acting out of self-interest can lead to common good
P3
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Conflict ·
Increasing returns from scale (Pin factory) leads to monopoly, which means Invisible Hand doesn't work
Invisible Hand requires many competitors in an industry.
Assumption underlying idea that free markets always get it right ·
Returns to scale are diminishing, not increasing
This assumption is the opposite of the Pin Factory model.
P4
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Why Pin Factory was de-emphasized ·
The model of diminishing returns was easier to represent mathematically
The Pin Factory model was more difficult to represent mathematically.
P5
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Pin Factory now mainstream ·
Once it could be described with enough math rigor, Pin factory entered mainstream
Passage Style
Single position
Spotlight
15.
Which one of the following ████ ██████████ █████████ ███ ████ █████ ██ ███ ████████
Question Type
Main point
The author describes the tension between the economic concepts of the Pin Factory and the Invisible Hand as well as the way in which the Pin Factory concept eventually came into the mainstream of economic thought.
a
Mainstream economists have ██████ ███████ ████ ███████ ██ █████ ███ █████████ ██████████ ██████ ████ ███████████
Actually, P4 tells us that economists had always assumed that returns to scale were generally diminishing. In any case, even if (A) were supported it would be too narrow, as the assumption of economists is just one part of the story underlying how the Pin Factory came into the mainstream of economic thought.
b
The functioning of ███ █████████ ████ ██ ████████ █████████ ███████ ███████████ ███████ ███ ██ █████████ ████ ████████████ ██████
This is too narrow, as the reason the Invisible Hand was accepted is just one part of the story underlying how the Pin Factory came into the mainstream of economic thought.
c
Recent developments in ███████████ ████ ███████ ███ ███ ███████ ██ ██ ███████ ████ ████ ██████████ ████ ███ █████████ █████
The author never indicates that we can now model the Pin Factory “even more rigorously” than the Invisible Hand.
d
Adam Smith was ███ █████ █████████ ██ ██████████ ███ █ ██████ ███████ ███ ██████ ██████████ █████████████ ██ █████ ███ ██████ █████
The main point isn’t about Adam Smith’s understanding about the market economy and self interest. It’s about how the concept of the Pin Factory came into the mainstream of economic thought.
e
Economists have, until ████████ █████████ ██████ ██ ███████ ███ ███ ██████████ ███████ ██ █████ ██████ ██ ████ ███████████
This is the best answer. The “increasing returns to scale” refers to the Pin Factory concept. And the passage discusses how it was only recently that the Pin Factory has emerged in mainstream economic thought.