Which of the following best describes the invisible hand theory of Adam Smith?

• A. Government intervention is necessary to allocate resources efficiently in the market.
• B. Producers must coordinate directly with consumers to ensure efficient outcomes.
• C. Markets always fail to achieve equilibrium without external regulation.
• D. Individuals pursuing their own self-interest unintentionally contribute to the overall economic well-being of society.

Answer: (D)

Verified step by step guidance

1. Understand the concept of the 'invisible hand' as introduced by Adam Smith, which suggests that individuals acting in their own self-interest can lead to positive outcomes for society as a whole without intending to do so.
2. Recognize that this theory implies that when individuals seek to maximize their own benefits, they indirectly promote efficient allocation of resources in the market.
3. Note that the theory does not advocate for direct government intervention or coordination between producers and consumers to achieve efficiency.
4. Identify that the invisible hand theory contrasts with views that markets always fail or require external regulation to reach equilibrium.
5. Conclude that the best description of the invisible hand theory is that individuals pursuing their own self-interest unintentionally contribute to the overall economic well-being of society.