A detailed analysis of the invisible hand Adam Smith Revisited A detailed analysis of the invisible hand

Smith’s 2 laws of the Market 1) Self-Interest: People act in their own self-interest Profits or greed motivate individuals 2) Competition: Lots of producers—you “fear” competition Assures goods are produced at the lowest possible price: economic efficiency

Self-Regulating Prices & Qty “Excess” profit attracts NEW competitors to enter industry Easy entry/exit ensures prices are forced to lowest possible level efficiency In this way, the market is Self-Regulating Self Regulation in Action Shortage of Good Prices ↑ People ENTER Mkt Supply ↑ Prices ↓

Adam Smith & Innovation The market will “harness man’s Creative power” to innovate Adam Smith & Innovation

Potential Flaws of Smith’s 2 Laws

Government & Adam Smith “Government is spendthrift, irresponsible, and unproductive”