Future Business Leaders of America (FBLA) Agribusiness Practice Test

What is a key element of classical economic theory?

1. Government intervention can enhance market efficiency

2. An economy is self-sufficient without external help

3. Markets are effectively managed through socialist practices

4. Government control is necessary for a stable economy

The correct answer is: An economy is self-sufficient without external help

A key element of classical economic theory is the belief in the self-regulating nature of markets. This theory posits that an economy tends to achieve equilibrium through the actions of individuals pursuing their self-interest, without the need for external intervention. Classical economists, such as Adam Smith, argue that individuals making decisions based on their perceptions of benefit will lead to the best outcomes for society as a whole. This notion emphasizes the ability of the market to coordinate resources effectively and suggests that, when left to operate freely, the economy can naturally achieve full employment and optimal allocation of resources. The concept of the "invisible hand," which suggests that individual self-interest inadvertently promotes the public good, is fundamental in classical economics. The other options reflect different views on economic management. For instance, government intervention to enhance market efficiency or to control the economy introduces ideas from other economic theories, such as Keynesianism or socialism, which do not align with classical thought. Moreover, the belief that an economy is entirely self-sufficient or requires government control does not capture the classical economists' emphasis on minimal interference in economic activities.