Chapter 2: Colonial Development by VWycS7P


									Chapter 2: Colonial Development

This chapter outlines key patterns of colonial settlement to help students understand how the colonial
economy of the United States developed. The various private and public factors influencing colonists’
decisions to settle and build in different locations are highlighted. Discussions on how the economic and
political circumstances influenced colonial decisions on what to produce, how to produce and for whom
to produce occur throughout the chapter. The roles of specialization, operation on the basis of
comparative advantage, free trade and reliance on market prices to direct activities are tied together in
explaining what forces fueled economic progress in colonial America. This chapter also considers the
role of the government in securing and enforcing private property rights and providing public goods and
services. Finally, taxes, subsidies, controls and other interventionist activities in the private market
affairs of colonists by government, their impact on the production and income levels of colonists and the
building of tensions between colonists and interfering government officials in the British Empire are

Key Terms and Concepts
Balance of payments                 Market overt                        Seaports
Break-in-transport                  Markets                             Specialization
Caveat emptor                       Monopoly                            Taxes
Common law heritage                 Morals                              Towns, townships, counties
Comparative advantage               Opportunity costs                   Trade
External economies                  Primogeniture                       Trade Deficit
Laissez-faire                       Price signals                       Trade restrictions
Licensing                           Quality controls                    Wealth

Teaching Tips
   1. Define production and explain that producers allocate scarce resources to those production
       alternatives promising the highest return at the lowest possible cost, including opportunity cost.
       English settlers, investors and others in the mother country strove to maximize profits by
       utilizing resources efficiently and effectively for the betterment of all trading partners. Discuss
       regional specialization and operation on the basis of comparative advantage in the New
       England, Middle and Southern Colonies. Explain that operation on the basis of regional
       comparative advantage and specialization increased colonial output and employment which
       then boosted income, consumption, savings, investment or the volume of trade.
   2. Use this chapter to illustrate that the colonies progressed by selling goods and services that
       could be produced at a relatively low cost and by buying goods and services that only could be
       produced at a relatively high cost from the United Kingdom, the West Indies and southern
       countries. Discuss the roots of international trade in the United States.
   3. Explain that price signals relate valuable information to consumers and producers. Changes in
       the market price of a particular good or service communicate to producers whether they should
       increase or decrease the amount supplied to consumers and/or whether they would want to
       decrease or increase the amounts purchased. By contrast, prices artificially set by governments,
       committees or boards do not reflect market conditions. Consequently, decisions to produce and
   consume are misinformed under fixed circumstances. They result in the diversion of resources
   from productive uses.
4. Use the contents of this chapter to lay the foundation for economic progress. Highlight the role
   of a stable legal system and secure private property rights. Explain how they motivate
   individuals to direct resources toward productive uses rather than wasting them.

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