Question

According to Adam Smith, how did the invisible hand of the marketplace work?

(a) Individuals, acting in their own self-interest, will promote the public good without intending to do so.
(b) The government should not interfere in the marketplace, as it will only disrupt natural economic processes.
(c) Competition in the marketplace will lead to lower prices and higher quality goods for consumers.
(d) All of the above

Answer 1

Adam Smith's 'invisible hand' refers to the way individuals acting in their own self-interest inadvertently contribute to the public good through the market's supply and demand.

Step-by-step explanation:

According to Adam Smith, the invisible hand of the marketplace works because individuals, acting in their own self-interest, will inevitably promote the public good without intending to do so. This phenomenon occurs as individuals seek to maximize their own gains, which drives them to produce goods and services that are in demand, thus benefiting society as a whole.

Adam Smith's concept of the invisible hand suggests that the market, through the mechanism of supply and demand, efficiently allocates resources without the need for government intervention. This fundamental idea not only encompasses individuals pursuing their personal profit but also implies that competition within the marketplace leads to more affordable prices and better-quality products for consumers. Thus, Smith's theory supports the benefits of a free-market economy.