What economic principle explains how individual self-interest can lead to beneficial outcomes for society?

The invisible hand theory is a fundamental economic concept introduced by Adam Smith. It describes how individuals' pursuit of their own self-interest can inadvertently contribute to the overall good of society. This happens because when individuals make decisions based on what they believe will benefit them personally, they often engage in activities that require cooperation, competition, and the efficient allocation of resources.

For example, when a business owner invests in product development to earn a profit, they not only work to enhance their own wealth but also create jobs, offer consumers better choices, and stimulate economic growth. This self-interested behavior can lead to innovation and improvements in productivity, ultimately benefiting society as a whole.

The other concepts mentioned, while important in their own right, do not capture this particular interaction between individual motives and societal benefits effectively. Supply and demand pertains to market dynamics rather than broad societal outcomes from self-interest. Comparative advantage focuses on the benefits of trade rather than self-serving actions improving social welfare. Market equilibrium describes a state in which supply equals demand, which does not specifically address the motivations behind individual actions and their societal consequences. Thus, the invisible hand theory aptly encapsulates how personal interest can lead to advantageous societal outcomes.