1. Which of he following does Adam Smith advocate?
•The pursuit of self-interest ✓
According to Adam Smith in a ‘laissez faire’ economy each member will try to pursue and maximize his own self-interest
•Import of restrictions to protect the domestic market ✗ Adam Smith believes in a free market economy and would disapprove of restrictions, even in the name of protection.
•Private armies to protect the domestic market ✓/✗
Adam Smith advocates the protection of the domestic market through an army, though I doubt he mean’s a private army. I believe he only supports an army that is owned and controlled by the public/the citizens.
•A legal system to safeguard internal peace and justice ✗ Adam Smith supports the ‘laissez faire’ system which states that the government or state should interfere as little as possible in the trading activities between people, as that would only harm trade.
•Government subsidies for the transport of infrastructure ✓ Adam Smith see’s this as another duty of the government to grant subsidies for the sake of transport and infrastructure.
2. What, according to Adam Smith, is the driving force of the economy? Adam Smith defined the factors of production as land, labor and capital. He also said that the economy was made up of individual transactions, and that buyers and sellers were looking out for their own self-interest, which was the driving force of every economy. Smith posed the idea of competition as well, and the "Invisible Hand" theory which dealt with competition, self-interest and protecting the consumer from government intervention.
3. Show how individuals who pursue self-interest may…
a)contribute to general economic prosperity(success);
b)harm the general well-being of society.