Adam Smith wrote that a person should never attempt to make at home what it will cost him more to make than to buy.
True
False
The correct answer and explanation is:
The correct answer is True.
Adam Smith, in his seminal work The Wealth of Nations (1776), introduced the concept of the “invisible hand” and emphasized the importance of specialization and trade in increasing economic efficiency. One of the key ideas he discussed was that individuals and businesses should focus on producing what they are most efficient at and buy other goods or services from others when it is cheaper than producing them themselves. This is in line with the concept of comparative advantage, where a person, firm, or country should specialize in producing goods or services in which they have the lowest opportunity cost and trade for the rest.
Smith argued that by specializing in what they do best, individuals or countries could create wealth and trade efficiently. If a person spends more resources to produce something than it would cost to buy it, they are wasting valuable time, labor, and capital. Instead, they should focus on what they are best at and purchase the goods that are more efficiently made by others. This principle applies not just to individuals but also to entire economies, leading to greater productivity and wealth for all.
For example, if it costs an individual more to make a shirt than to buy it from someone else who specializes in shirt-making, it would make no sense for the individual to produce the shirt themselves. Instead, they could focus on other tasks that they are more skilled at, such as providing a service or producing something else, and use the money they save to purchase the shirt.
This idea laid the foundation for modern economic theory, particularly the importance of trade and market efficiency in fostering economic growth and prosperity.