Question 5 of 14beginner💡 UnderstandShort Answer3 marks

What is meant by the phrase 'invisible hand'?

Correct Answer

The phrase 'invisible hand' refers to a concept introduced by Adam Smith in his book The Wealth of Nations. Smith argued that the market economy is made up of a series of individual exchanges or transactions.

These transactions automatically create a functioning and ordered system, even though none of the individuals involved in the millions of transactions had intended to create such a system. The 'invisible hand' thus explains how individual self-interested actions collectively produce an organised economic order without any central planning or coordination.

Exercise: EXERCISES | Q: 1 | (Page 16)
For More Understanding

Explanation

The answer draws directly from the textbook's discussion of Adam Smith's contribution to early political economy. The concept of 'invisible hand' explains the self-regulating nature of markets where individual transactions create systemic order without deliberate intention.

Solution Steps

  1. Step 1: Identify Adam Smith as the originator of the concept from the context.

  2. Step 2: Explain that individual transactions automatically create an ordered system.

  3. Step 3: Emphasise that this happens without any individual intending to create a system.

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