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Adam Smiths Economic Theory About The Invisible Hand, Opinionated

923 words - 4 pages

"The Invisible Hand" Smith laid the intellectual framework that explained the free market and still holds true today. He is most often recognized for the expression "the invisible hand," which he used to demonstrate how self-interest guides the most efficient use of resources in a nation's economy, with public welfare coming as a by-product. It is my opinion that Adam Smith's theory of economic growth and wealth creation is a valid one. People start a business to become wealthy. To do this they must produce some type of goods or offer some type services to satisfy societies demands. To produce those goods and services they must either perform the manual labor themselves or hire others to help produce the goods or perform the services for them. The invisible hand will cause prices to adjust to the demands of consumers and the output of businesses. If there is and increase in consumer demand for certain goods, the market price will rise as the number of goods purchased rises. This encourages businesses to increase the production and quality of the products to satisfy the demands of society. Competition will ensure that businesses produce the best quality product that the consumers want at a price that is determined by the market. Basically it's a circular effect. As each person in this circle buys and creates goods it will in theory lower the price of certain goods and leave that consumer with extra money to spend. Since people are now buying goods at a cheaper price and working less, they are able to have more free time and create more ideas to increase productivity. As all this is taking place, the country is growing and producing a richer society. Through the technical progress of economics and the division of labor, we are inadvertently creating a better society. The "invisible hand" ensures that when businesses maximize their profits, they also maximize society's output and income. Smith also assumed that consumers choose the lowest price and entrepreneurs choose the highest rate of profit. Thus the consumers, in a way, directed the entrepreneurs' to make the most profitable investment. Because resources are scarce and society's demands are basically unlimited, more and more people are becoming dependant on the government to help...

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