Which of the following illustrates what happens when supply and demand work as they should, according to Adam Smith? (1 point)
O There is enough supply of a given product to meet consumer demands
O Governments open new factories to meet demand for goods.
• Companies make more of a product even though few people buy it.
O Consumers make companies create new types of products.
There is enough supply of a given product to meet consumer demands.
The correct answer is: There is enough supply of a given product to meet consumer demands.
The correct answer is: "There is enough supply of a given product to meet consumer demands."
To understand why this answer aligns with Adam Smith's perspective, let's first discuss the concept of supply and demand according to Adam Smith's theory of capitalism. Adam Smith was a renowned economist and the author of "The Wealth of Nations," which laid the groundwork for modern economic theory.
According to Smith, in a well-functioning market, supply and demand interact to determine the equilibrium price and quantity of a product. Smith believed that when markets are left to operate freely, without excessive government intervention, they have a tendency to naturally reach this equilibrium.
Considering the answer options provided:
- "Governments opening new factories to meet demand for goods" reflects a situation where government intervention is involved, which doesn't align with Smith's ideal of a free market.
- "Companies making more of a product even though few people buy it" suggests an imbalance between supply and demand. In a properly functioning market, supply is driven by demand, so companies would typically increase production in response to increased consumer demand.
- "Consumers making companies create new types of products" can influence market trends and product innovation, but it doesn't directly address the functioning of supply and demand.
On the other hand, "There is enough supply of a given product to meet consumer demands" demonstrates the ideal scenario according to Adam Smith. In his view, when supply and demand work as they should, producers are able to accurately anticipate the demand for a product and align their supply accordingly. This results in a balanced market where consumers' demands are met without excessive shortages or surpluses.