Question

Do you think there are any bad things about the The Invisible Hand?

Answer 1

Yes, there are bad outcomes with the invisible hand. The invisible hand is where the supply and demand for goods and services are allowed to operate freely in the market without government intervention.

In this type of situation, the possibility of market failure may arise in the economy. Market failure is a type of situation where the distribution of goods and services among the people in the economy is such that the distribution is not efficient in the economy. Market failure can result in the following way:

(a) Negative Externalities - Negative Externalities is when a third party gets affected in a negative way. For example, if a factory owner releases large amount of smoke in the air daily while producing his goods, the people living near the factory would get affected in form of diseases due to the bad air surrounding them.

(b) Lack of public goods - In a market where only sellers and consumers are guided by their profit motive to buy and sell their products, there won't be any government and so there won't be any public goods as well. Lack of public goods can result in many disadvantages such as building new roads and maintaining the old ones.Nobody would want to invest their money on roads because everybody uses it free of cost i.e. it is a public good. Without good roads in a country, one of the main mode of transportation i.e. road transport would fail in that country.

(c) Oversupply of demerit goods - Goods which harm consumers when consumed in large amounts such as cigarettes, alcohol, drugs, etc would be more in supply without anybody to limit its supply. This greater supply of these demerit goods would harm consumers ultimately. If the government was there to check on its limitation, the government would have had imposed a high amount of tax rate or a quota so that people are forced to consume it less and ultimately get benefitted.