Consider the following statements about the ‘Invisible Hand’ in a per…

Consider the following statements about the ‘Invisible Hand’ in a perfectly competitive market:

(A) The idea of an ‘Invisible Hand’ dates from the time of Adam Smith.
(B) The Invisible Hand keeps the price unchanged when there is excess demand.
(C) The Invisible Hand lowers the price when there is excess supply.
(D) It is assumed that the Invisible Hand, by changing the price, is able to reach the equilibrium.

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → (A), (C) and (D) only

The ‘Invisible Hand’ is the idea that the price itself corrects any imbalance in a competitive market. It raises the price when there is excess demand and lowers it when there is excess supply.

(A) The idea of an ‘Invisible Hand’ dates from the time of Adam Smith. — Correct. The idea has been held from the time of Adam Smith (1723-1790).

(B) The Invisible Hand keeps the price unchanged when there is excess demand. — Incorrect. With excess demand, the Invisible Hand raises the price.

(C) The Invisible Hand lowers the price when there is excess supply. — Correct. With excess supply, it lowers the price.

(D) It is assumed that the Invisible Hand, by changing the price, is able to reach the equilibrium. — Correct. It is assumed that, by changing the price, the Invisible Hand is able to reach the equilibrium.

NCERT (2026-27): “Out-of-equilibrium Behaviour From the time of Adam Smith (1723-1790), it has been maintained that in a perfectly competitive market an ‘Invisible Hand’ is at play which changes price whenever there is imbalance in the market. Our intuition also tells us that this ‘Invisible Hand’ should raise the prices in case of ‘excess demand’ and lower the prices in case of ‘excess supply’. Throughout our analysis we shall maintain that the ‘Invisible Hand’ plays this very important role. Moreover, we shall take it that the ‘Invisible Hand’ by following this process is able to reach the equilibrium. This assumption will be taken to hold in all that we discuss in the text.”