Competition & The Invisble Hand

Question 1

What is competition?

Answer 1

The mechanism of control for the market system.

Not only guarantees that industry responds to consumer wants, but it also forces firms to adopt the most efficient production techniques

Question 2

What is Adam Smith’s “Invisible Hand?”

Answer 2

Promotes public interest through a market system where the primary motivation is self-interest

By attempting to maximize profits, firms will also be producing the goods and services most wanted by society.

Question 3

What are three things the market system and promotes and provides?

(PIE)

Answer 3

1. ) Promotes EFFICIENCY in the allocation of resources
2. ) provide INCENTIVES for people to be productive through work effort and acquiring skills
3. ) provide PERSONAL FREEDOM in making economic decisions