Question

One reason we need government, even in a market economy, is that a. there is insufficient market power in the absence of government. b. property rights are too strong in the absence of government. c. the invisible hand is not perfect.

Answer 1

The correct answer is option c.

Step-by-step explanation:

The phrase invisible hand was first used by the economist Adam Smith in his book "Wealth of nations". It refers to the invisible market forces of demand and supply that help reach the equilibrium.

Though this invisible force is powerful, it is not perfect. In some cases, it fails to achieve efficiency which leads to the market. In such situations, government intervention is required to efficiently allocate resources in the economy.