Adam Smith:

The Wealth of
Nations.
A Book About the Market
Economy
I. What is the Free Enterprise System?
A. It is the U.S. Economic System.
B. Individuals have the right to own private
property and to make individual choices
about. . . .
1. How to use their property
2. How they are going to make money.
C. Competition between business and
individuals is allowed without government
interference.
D. Two groups that make decisions
affecting the Free Enterprise System:
1. Consumers – people who buy goods
or services.
2. Producer -A person or company that
provides goods or services.
II. Adam Smith
A. In his book, The Wealth of Nations,
Smith explains how people that make
reasoned decisions about what to buy
and sell drive the economy.
B. The book was a manifesto against
mercantilism.
C. The Invisible Hand: Was Smith’s
theory that the free market should
not be regulated by the government.
ex. If there is a shortage of a good,
the prices will rise , and others
will enter the market which will
cure the shortage and lower the
price.
 ABOVE: Adam Smith admiring Adam Smith!

RIGHT: The
Above – Smith’s
Wealth of
book explained how
Nations also
the division of labor
described a
would be helpful for
free market
factories.
principle called
the invisible
hand.
III. Private Property Rights
A. We have freedom to own and use, or do
whatever we want to with our own
property.
B. This gives incentive to work, save & invest.
C. Because of this freedom we take better
care of things if we actually own them so
they tend to last longer.
IV.Competition is the struggle between buyers and
sellers to get the best product at the lowest
prices.
A. Between sellers it keeps the cost of
production low and the quality of the goods high.
B. Competition between buyers happens by
finding the best products at the lowest prices.
III. Supply and Demand
A. Demand: the amount of a good or a
service that a consumer is willing and
able to buy at various periods.
B. When prices go up, demand drops. When
demand prices go down, demand
increases.
C. Supply is the quantity of goods and
services that produces are willing to offer
at various time periods.
D. The law of supply states that producers
supply more goods and services when
they can sell them at higher prices.
E. Competition is the economic rivalry
among businesses selling similar
products.