With reference to the "Invisible Hand", Adam Smith maintained that: 1. It operates through the price mechanism to coordinate markets. 2. It is driven primarily by the altruistic motives of producers. 3. It leads the market towards equilibrium. Which of the statements given above is/are correct?

Correct Option The correct option is 1 and 3 only. Explanation The "Invisible Hand" is a metaphor introduced by Adam Smith in his seminal work, The Wealth of Nations (1776). It describes the unseen forces of a free market economy that move the market toward equilibrium. The core premise is that individuals acting in their own self-interest unintentionally promote the public good and economic efficiency. Statement-wise Analysis - Statement 1 is Correct: The invisible hand operates through the price mechanism. Prices serve as signals in a market economy; rising prices indicate scarcity (encouraging production and discouraging consumption), while falling prices indicate surplus. This automatic signaling coordinates the actions of buyers and sellers without central planning. - Statement 2 is Incorrect: Adam Smith explicitly argued that the invisible hand is driven by rational self-interest, not altruism. He famously stated, "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest." Producers seek to maximize profit, which drives them to produce what consumers want. - Statement 3 is Correct: The interaction of supply and demand, guided by self-interest and price signals, naturally leads the market toward equilibrium. At this point, the quantity supplied equals the quantity demanded, ensuring efficient resource allocation. Key Takeaway Key Takeaway: The "Invisible Hand" relies on self-interest and the price mechanism to coordinate economic activity and achieve market equilibrium, rather than on benevolence or central direction.

NCERT Class 12 Economics — Chapter 2: Market Equilibrium

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With reference to the "Invisible Hand", Adam Smith maintained that:

It operates through the price mechanism to coordinate markets.
It is driven primarily by the altruistic motives of producers.
It leads the market towards equilibrium.

Which of the statements given above is/are correct?

Official previous-year question

Verified 1 Aug 2026.

Options

A1 and 3 only
B1 and 2 only
C1, 2 and 3
D2 only

Did you get this right?

Solution

Correct Option

The correct option is 1 and 3 only.

Explanation

The "Invisible Hand" is a metaphor introduced by Adam Smith in his seminal work, The Wealth of Nations (1776). It describes the unseen forces of a free market economy that move the market toward equilibrium. The core premise is that individuals acting in their own self-interest unintentionally promote the public good and economic efficiency.

Statement-wise Analysis

Statement 1 is Correct: The invisible hand operates through the price mechanism. Prices serve as signals in a market economy; rising prices indicate scarcity (encouraging production and discouraging consumption), while falling prices indicate surplus. This automatic signaling coordinates the actions of buyers and sellers without central planning.
Statement 2 is Incorrect: Adam Smith explicitly argued that the invisible hand is driven by rational self-interest, not altruism. He famously stated, "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest." Producers seek to maximize profit, which drives them to produce what consumers want.
Statement 3 is Correct: The interaction of supply and demand, guided by self-interest and price signals, naturally leads the market toward equilibrium. At this point, the quantity supplied equals the quantity demanded, ensuring efficient resource allocation.

Key Takeaway

Key Takeaway: The "Invisible Hand" relies on self-interest and the price mechanism to coordinate economic activity and achieve market equilibrium, rather than on benevolence or central direction.

Your note

More from Chapter 2: Market Equilibrium

With reference to the demand for a normal good, consider the following statements: 1. An increase in consumers' income leads to a rightward shift in the market demand curve. 2. An increase in the number of consumers leads to a rightward shift in the market demand curve. 3. A rightward shift in demand, with supply constant, leads to a decrease in equilibrium price. Which of the statements given above is/are correct?

easy

Consider the following statements regarding Market Equilibrium in a perfectly competitive market: 1. An equilibrium is defined as a situation where the plans of all consumers and firms in the market match. 2. In equilibrium, the aggregate quantity that all firms wish to sell equals the quantity that all consumers wish to buy. 3. If the market supply is greater than market demand at a specific price, the market is said to be in a state of excess demand. Which of the statements given above is/are correct?

easy

Consider the following statements regarding the determination of equilibrium with a fixed number of firms: 1. If the prevailing price is lower than the equilibrium price, there will be excess supply in the market. 2. In a situation of excess demand, the market price tends to increase. 3. As price rises, quantity demanded falls and quantity supplied increases, moving the market towards equilibrium. Which of the statements given above is/are correct?

medium

With reference to the Labour Market, consider the following statements: 1. Households are the suppliers of labour, while the demand for labour comes from firms. 2. The demand curve for labour by a profit-maximising firm is upward sloping. 3. The wage rate is determined at the intersection of the demand and supply curves of labour. Which of the statements given above is/are correct?

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Consider the following statements regarding the Marginal Revenue Product of Labour (MRPL): 1. It is the extra cost incurred for employing the last unit of labour. 2. It is calculated as the product of Marginal Revenue and Marginal Product of labour. 3. For a perfectly competitive firm, the Marginal Revenue Product of Labour is equal to the Value of Marginal Product of Labour. Which of the statements given above is/are correct?

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Correct Option

The correct option is 1 and 3 only.

Explanation

Statement-wise Analysis

Statement 1 is Correct: The invisible hand operates through the price mechanism. Prices serve as signals in a market economy; rising prices indicate scarcity (encouraging production and discouraging consumption), while falling prices indicate surplus. This automatic signaling coordinates the actions of buyers and sellers without central planning.
Statement 2 is Incorrect: Adam Smith explicitly argued that the invisible hand is driven by rational self-interest, not altruism. He famously stated, "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest." Producers seek to maximize profit, which drives them to produce what consumers want.
Statement 3 is Correct: The interaction of supply and demand, guided by self-interest and price signals, naturally leads the market toward equilibrium. At this point, the quantity supplied equals the quantity demanded, ensuring efficient resource allocation.