Hanhan !1
Alex Hanhan
Professor Rasmus
Econ 102
7 May 2018
Final Research Paper
Supply side economics is a rather broad topic. We see the opening scene of Farris
Beuhlers Day Off, where the students are falling asleep as the economics professor is lecturing
on Supply side economics. Supply side is basically the application of using price theory in
certain dilemmas that concern economic aggregates. The most noticeable factor when the supply
side is being examined is that it considerably identifies the first effect of the actions of
government in retrospect to relative prices. The responses to the certain changes in relative prices
take in account to changes in the already existing allocation production resources(Alexander).
The basic fundamental theory of supply side is that it denies the possibility of government action
directly changing real total income in the economy(Evans). The supply side analysis regards the
notion that government actions have no direct impact on the aggregate demand which ironically
strays away from the notion of many neoclassical ideologies and, indeed, affect nominal
aggregate demand only as a preset consequence of changes in the stock of money(Alexander).
Supply side also has a price effect on the tax system for one. Tax policy most noticeably shows
how the first order relative price effects take order in the supply side. Every tax has the attribute
of altering relative prices or costs. This can be obviously seen through excise taxes. Every tax is
an excise effect but because of the raise in price for gas as an example is seen by everyone, but
the price for the motorist goes up for everything.
Hanhan !2
No essay on Supply side economics would be complete without the fundamental
teachings of Adam Smith. Smith, building on some of the writings of both the Physiocrats and
Hume as well as on philosophers such as Locke and Montesquieu, presented a new tax-related
scheme that fully incorporates all supply-side principles(Harvey). Smith argued that an economy
could reach its pinnacle with self interest and the free market system. Smith differed from
mercantilists as he was able to focus more on the creation of wealth rather than the transfer of
wealth(Evans). Wealth, to Smith, was defined as the consumption of the real goods and services
and also the production in the market rather than amount of gold, and a nation was defined as a
sustainable economy according to whatever it produced annually. Smith created The Wealth of
Nations, in which he was able to argue that in order for an economy to sustain and reach its
potential of economic growth, the emphasis needs to be placed on the aggregate supply and the
production of goods and services rather than increasing the monetary gold stock. For Smith, the
increase in aggregate supply meant the increase in supply of labor and capital(Evans). Through
his book, Adam Smith was able to stress the importance of incentives in eliciting increases in
either labor or capital. Smith a...
