Question

93.The "invisible hand" refers to

a. how central planners made economic decisions.

b. how the decisions of households and firms lead to desirable market outcomes.

c. the control that large firms have over the economy.

d. government regulations without which the economy would be less efficient.

24.A simultaneous increase in both the demand for tablets and the supply of tablets would imply that

a. both the value of tablets to consumers and the cost of producing tablets has increased.

b. the value of tablets to consumers has increased, and the cost of producing tablets has decreased.

c. both the value of tablets to consumers and the cost of producing tablets has decreased.

d. the value of tablets to consumers has decreased, and the cost of producing tablets has increased.

Answer 1

1. The term ' invisible hand ' is used by the famous economist Adam smith in his book ' An inquiry into the nature and causes of wealth of nation' . The term is a part of the laissez-fair policy that is the economy always would be in equilibrium without any government intervention. According to Adam Smith every people works in favour of their self interest so there would be a competition among each other and this will lead to an efficient outcome with the invisible hand. For eg. if there is a shortage in the economy and it would put upward pressure on the price and the price will rise until the shortage is eliminated.

Ans: b). How the decisions of the firms and households lead to desirable market outcomes.

2. An simultaneous increase in the demand and supply will increase the quantity demanded and the changes in prices will be determined by the magnitude of these changes. The increase in demand is the change in quantity demanded at every price level and this indicates the consumer consider the tablets is more important than before so the value of the tablets for the consumer has increased. The important determinant of the supply of the tablets is input costs , a decrease in the inputs costs give the firms an incentive to produce more so there would be an increase in the supply. Similarly the firm would cut down the production if there is a rise in the input costs and this is a decrease in the supply.

Ans: b. The value of the tablets to consumer has increased, and the cost of producing tablets has decreased.