According to Adam Smith, when supply and demand work as they should, prices and quantities in a market will naturally reach an equilibrium. This means that the quantity supplied by producers will equal the quantity demanded by consumers, resulting in a balance where the market clears.
So, an example that illustrates this concept would be when the price of smartphones decreases due to advances in technology and increased competition. As a result, more consumers are willing and able to purchase smartphones at the lower price, leading to an increase in demand. On the other hand, manufacturers are motivated to produce and supply more smartphones at the lower price, as they can still make a profit. Eventually, the market reaches a point where the quantity supplied matches the quantity demanded at the given price, resulting in an equilibrium where supply and demand are in balance. This situation aligns with Adam Smith's notion of how supply and demand should work in a free market economy.
which of the following illustrates what happens when supply and demand work as thye should, according to Adam Smith?
1 answer