CAPF AC 2020 Q61: Indian Economy – Microeconomics & Market Concepts
- (a) Government
- (b) Market/Price Mechanism
- (c) Judiciary
- (d) Legislature
Answer: (b) Market/Price Mechanism
Explanation
Adam Smith's invisible hand
How to think: an invisible hand cannot be a body you can see.
Government, courts and legislature are all visible institutions.
Only the market works without anyone directing it.
The idea: each person works for his own gain.
Yet prices guide buyers and sellers so that society as a whole benefits.
No one plans this, so Smith called it an invisible hand.
| Option | Verdict | Reason |
|---|---|---|
| (a) Government | Incorrect | Smith wanted little government role in the economy |
| (b) Market/Price Mechanism | Correct | Prices match demand and supply on their own |
| (c) Judiciary | Incorrect | It settles disputes; it does not allocate goods |
| (d) Legislature | Incorrect | It makes laws; it does not set market prices |
About Adam Smith:
| Fact | Detail |
|---|---|
| Book | The Wealth of Nations, 1776 |
| Known as | Father of Economics |
| Policy | Laissez-faire: leave the market free |
Answer: (b) Market/Price Mechanism.
Why each option is right or wrong
- (a) Incorrect. The government is a visible hand; Smith wanted it to stay out of markets.
- (b) CORRECT. The market or price mechanism is Adam Smith's invisible hand.
- (c) Incorrect. The judiciary enforces contracts but does not guide production.
- (d) Incorrect. The legislature makes laws; it is not the invisible hand.
Key point
Invisible hand (Adam Smith, The Wealth of Nations, 1776) = the market or price mechanism; self-interest guided by prices benefits society; basis of laissez-faire.
Remember
Invisible hand = price mechanism of the market.
Common mistakes
- Choosing government, which is the opposite of what Smith meant.
- Mixing up Adam Smith with Keynes, who argued for government action.
- Giving the year of the book as 1876; it is 1776.
Exam tip
Educated guess: three options are organs of the State. The odd one, the market, is the answer.
Sources
- NCERT Class XII Economics — Introductory Macroeconomics (Introduction: Adam Smith and the market)
- NCERT Class XI Economics — Indian Economic Development