According to Adam Smith, which concept is fundamental to the efficient allocation of resources in a market economy?

• A. The invisible hand
• B. Central planning
• C. Monopolistic competition
• D. Government price controls

Answer: (A)

Verified step by step guidance

1. Understand the context of Adam Smith's economic theories, particularly his views on how markets operate efficiently without central intervention.
2. Recall that Adam Smith introduced the concept of the 'invisible hand' to describe how individuals pursuing their own self-interest can lead to an efficient allocation of resources in a market economy.
3. Recognize that 'central planning' refers to government control over resource allocation, which contrasts with Smith's idea of decentralized decision-making.
4. Note that 'monopolistic competition' is a market structure concept and not directly related to Smith's fundamental idea about resource allocation.
5. Understand that 'government price controls' involve direct intervention in markets, which again contrasts with the idea of the 'invisible hand' guiding efficient outcomes.