Which event in Macbeth illustrates the recurring motif of "Fair is foul, and foul is fair"?
A. Macbeth kills the current king and is rewarded by being named king himself.
B. Lady Macbeth makes excuses for Macbeth when he acts crazy at the banquet.
C. Macbeth kills Duncan's guard in a fit of anger and then lies about his reasons.
D. Macduff travels to England to talk to Duncan's son, Malcolm
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What the line points to is the play's concern with the discrepancy between appearance and reality: that is, the difference between how someone seems and how someone is. It is a central concern of Shakespeare's, and obviously one that fits well with the medium of theatre, which relies on actors seeming to be something that they most definitely aren't.
Macbeth, when he - almost - quotes the line on his first entrance, turns it into a remark which juxtaposes his victory with the weather:
So foul and fair a day I have not seen.
The weather is "foul" - bad - but the day (meaning "the outcome of the battle": hence "the day is yours") is "fair" - good, because they have won. The day is foul and fair at once.
That said, none of that is really any help to us with the witches' enigmatic line, which says simply that bad is good, and good bad. It's rather like when Macbeth says that "nothing is, but what is not" - a difficult, knotty idea that, in the world of this play, nothing is the only something. Foul is fair. Fair is foul. It's a world where nothing is what it seems. It's a world where you're never sure whether it's a real dagger or an apparition, a mirage, or the ghost of Banquo. It's a world where you can't trust anyone. Not even the witches.