Principles of Microeconomics
Solutions
Principles of Microeconomics
Adam Smith's “invisible hand" refers to
a. the subtle and often hidden methods that businesses use to profit at consumers' expense.
b. the ability of free markets to reach desirable outcomes, despite the self-interest of market participants.
c. the ability of government regulation to benefit consumers, even if the consumers are unaware of the regulations.
d. the way in which producers or consumers in unregulated markets impose costs on innocent bystanders.
Option (b):
According to Adam smith, the “invisible hand” can be defined as the ability of the free market to reach desirable outcomes, despite the self-interest of the market participants. Smith is saying that the participants in the economy are motivated by sell-interest and that the “invisible hand” of the marketplace guides this self-interest into promoting general economic well-being. Thus, the option ‘b’ is correct.
Option (a):
The option (a) is a wrong option because Adam smith defines that it is the ability of the free market to reach desirable outcome regardless of the self-interest participation...
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