Which of the following statements is true according to Adam Smith's theories?

• A. Wealth is created primarily through the accumulation of gold and silver.
• B. Prices are determined solely by government regulation.
• C. Markets function best when individuals pursue their own self-interest.
• D. Government should control all aspects of economic production.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand Adam Smith's core economic philosophy, which emphasizes the role of self-interest in driving economic activity and the efficiency of markets.
2. Step 2: Recall that Adam Smith argued against heavy government intervention, advocating instead for the 'invisible hand' where individuals pursuing their own self-interest lead to efficient market outcomes.
3. Step 3: Evaluate each statement in the problem against Smith's ideas: accumulation of gold and silver (mercantilism) is not his focus; prices determined solely by government regulation contradict his support for free markets; government control of all production opposes his advocacy for limited government.
4. Step 4: Identify that the statement 'Markets function best when individuals pursue their own self-interest' aligns with Adam Smith's theory of the invisible hand and market efficiency.
5. Step 5: Conclude that the correct statement according to Adam Smith's theories is the one emphasizing the role of self-interest in market functioning.