Question

How did Adam Smith revolutionize economics?
a. He developed the idea of the "invisible hand" of the free market, which continually keeps the economy on course.
b. He taught that a good or service is worth the value of the labor that went into it, neither more nor less.
c. He espoused the notion that an economy is successful when it increases the value of the national treasury.
d. He was the first to believe that the work of free laborers and entrepreneurs was more valuable than a feudal economy.

Answer 1

Adam Smith is the guru behind classical economics and his introduction of the 'invisible hand' concept. Basically, no one person is in control of the market and order is generated in the market without anyone intending this. e.g. Firms are in the market to make a profit, but to do this they need to provide goods and services that the market demands. Self-interest feeds the good of society in this way.

His thoughts are still valid in terms of the ways we think about economics, but classical economics can be argued to have died out in some respects. For example, one argument is that in this recession there should be no government intervention as the invisible hand will intervene, i.e. prices will fall due to decreased demand and the fall in prices will get consumers spending again. Keynesian economics, on the other hand would argue that there needs to be government intervention in order to stimulate aggregate demand and this is the approach most governments are taking, eg. Barack Obama's stimulus plan is an example of Keynesian economics.

hope this helps

Answer 2

It does, thank you so much!