Question

What is "Invisible hand" in economics ?

• A. The self-regulating nature of the market force
• B. Government intervention in the market
• C. The influence of monopolies
• D. Centralized economic planning

Hint:

Remember the key elements: self-interest, free market, unintended benefits, and minimal intervention.

Answer 1

The Correct Option is A

Step 1: Identify the origin of the "Invisible Hand" concept.
The concept of the "invisible hand" was famously articulated by the economist Adam Smith in his seminal work, The Wealth of Nations, published in 1776. Step 2: Understand the core idea behind the "Invisible Hand".
Smith argued that individuals, acting in their own self-interest within a free market, unintentionally contribute to the overall economic well-being of society. This happens as if guided by an "invisible hand." Step 3: Analyze how self-interest leads to societal benefit.
In a competitive market, individuals and businesses strive to maximize their own gains (e.g., profits, utility). To achieve this, they must offer goods and services that others are willing to buy at competitive prices. This process, driven by supply and demand, allocates resources efficiently and leads to the production of goods and services that consumers desire. Step 4: Evaluate the given options in the context of the "Invisible Hand".
(1) The self-regulating nature of the market force: This option directly aligns with the concept. The invisible hand describes how the market, through the interplay of individual actions, tends towards equilibrium and efficiency without the need for direct control.
(2) Government intervention in the market: This is contrary to the idea of the invisible hand, which suggests that the market can function effectively with minimal intervention. Government intervention is often seen as disrupting the natural self-regulating mechanisms.
(3) The influence of monopolies: Monopolies, by definition, restrict competition and can manipulate prices and supply, thus hindering the free market forces that the invisible hand relies upon.
(4) Centralized economic planning: This involves a central authority making decisions about production and distribution, which is the opposite of the decentralized, individual-driven actions described by the invisible hand.
Step 5: Conclude the correct definition of the "Invisible Hand".
The "invisible hand" in economics refers to the self-regulating nature of the market force, where individual self-interest unintentionally promotes societal benefit.