profit motive

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The desire for gain as a motive in economic activity. The profit motive can mean no more than the assumption that firms aim to maximize profit, but it can also be used in a derogatory sense to imply selfish justification for socially damaging actions. In economic theory it is the profit motive that ensures the choices of competitive firms satisfy the conditions required for Pareto efficiency. This was the insight of Adam Smith (1723–1790): when mediated by the price mechanism choices that are individually rational are also socially efficient.

Subjects: Economics.

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