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

2. 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

3. 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 ↓

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

5. Potential Flaws of Smith’s 2 Laws

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