Question

All of the following except one are reasons why Adam Smith advocated the doctrine of laissez-faire. Which is the exception? A. He believed that economic liberty went hand in hand with political liberty. B. He believed that working people needed a government to ensure that they were not exploited. C. He believed that people should be left free to decide their own economic actions. D. He believed that an economy works best if it is left unplanned, uncoordinated and undirected. E. In Smith’s time, government action was often arbitrary and despotic.

Answer 1

Answer: B

This is the free-market economy where there should be no government intervention. It develops the concept of capitalization – people think and act based on their own benefits. This is the kind of systems where there is no price ceiling, price floor, subsidy, or minimum wage regulation. The movements of Demand and supply of labor establish their wage rate – the government should not intervene for fixing their minimum wage, since this actually reduces employment.

Working people don’t want safeguard from government. Therefore, this point is an exception, since if working people do want such safeguard (not to be exploited) the laissez-faire concept could not be developed.