What assumptions about the economy must be true for the invisible hand to work? to what extent are those assumptions valid in th

Question

s344n2d4d5 [400]

3 years ago

14

What assumptions about the economy must be true for the invisible hand to work? to what extent are those assumptions valid in th

e real world?

Business

2 answers:

Sergio039 [100] · Answer 1 · 2022-07-24T18:41:53+03:00

The assumptions about the economy must be true for the invisible hand to work are no restrictions imposed by the government, free flow of goods and the demand and supply of the goods is at equilibrium, These assumptions are not valid in the real world.

Further Explanation:

“Invisible hand to work”, this term is taken by Adam Smith in his book “The wealth of nation”. It means the market is free from the restrictions and regulations. The government does not impose any type of restriction in this market. The demand and supply of the goods meet at the equilibrium price.

Following are the assumptions of the economy for the invisible hand to work :

• Free entry and Exit in the market

• No regulations and restrictions

• Lower prices

• Less profit

• No intervention of the government.

This is not true in the real world. The government always intervene in the market, the government collects taxes from producers. The government is directly related to the market. it is not necessary, the demand and supply of the goods always meet. This assumption is not true in real sense. Each producer can enter the market, but they can not charge the lower price as the cost of producing is more in the starting.

Learn more:

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Answer details:

Grade: Middle School

Subject: Economics

Chapter: Invisible hand to work

Keywords: assumption, economy, invisible hand to work, Adam Smith, the wealth of the nations, Free entry and Exit in the market, No regulations and restrictions, Lower prices, Less profit, No intervention of the government.

sleet_krkn [62] · Answer 2 · 2022-07-24T17:34:23+03:00

The main assumption that has to be true for Adam Smith's theories to be valid is that everyone is acting in a way that most benefits them and nobody else. Since resources are seen as limited, people are thought to act in ways that most benefit them and nobody else. These assumptions might be valid in many cases, but the concept of charity shows that they are not always the case, and the invisible hand might be guiding people at times, but not always.