Felister Ng’aa

21-0234
ECO 111X

1. Adam Smith’s theory aligns with the economic system known as capitalism which is
characterized by private ownership of recourses and means of production, free market
competition and the pursuit of individual self interest.
2. The “invisible hand” refers to the idea that, in a free market economy, individuals pursuing their
self-interest unintentionally promote the well-being of society as a whole. It’s like an unseen
force guiding economic activity. In real life, it means that when businesses compete and
consumers make choices, it can lead to efficient allocation of resources and overall economic
growth.
3.
4. The limitations of capitalism include potential wealth inequality, market failures, and the
potential for exploitation if regulations are not in place.