Set 5: Central Ideas (Advanced)
Explanation
PASSAGE
The following text describes the 'Invisible Hand'. Adam Smith, in 'The Wealth of Nations,' used the metaphor of the 'invisible hand' to describe the unintended social benefits of an individual's self-interested actions. He argued that by pursuing his own interest, an individual frequently promotes that of the society more effectually than when he really intends to promote it. In a free market, the interaction of supply and demand acts as a self-regulating mechanism that allocates resources efficiently without central planning.
What mechanism does the 'invisible hand' metaphor describe?
Detailed Explanation
Choice B is correct. The text links it to 'self-regulating mechanism' and 'unintended social benefits of... self-interested actions.'
Key Evidence:
• "self-regulating mechanism"
• "pursuing his own interest... promotes that of the society"
Why others are wrong: A (Opposite (without central planning)), C (Misinterpretation (Conspiracy)), D (Misinterpretation (Text says 'frequently promotes... *more effectually* than when he really intends to')).