Question

Adam Smith believed that countries would prosper if business people were free to start and run their own businesses. Business people would make a profit by providing the goods, services and ideas that others in the economy wanted, and they would hire others to help increase those profits, leading to social and economics benefits for many. This idea was called the __________.
a) kinked demand theory.
b) invisible hand.
c) spending multiplier.
d) demand accelerator.

Answer 1

Answer:

B. INVISIBLE HAND

Explanation:

Adam Smith theory of 'Laissez Faire' favours free capitalism.

The theory states that free markets guided by individual self interest create best over all  socio economic wealth & welfare. Producers make goods satisfying society needs, to earn maximum profit, & free competition keeps markets efficient.

Any distortion in markets is automatically re-stabilised by - 'self interest' & 'free 'competition' as components of 'INVISIBLE Hand'. Markets Invisible Hand guided by 'self interest' & 'competition' is best welfare maximising tool, no government intervention is needed.