When the "invisible hand" guides economic activity, prices of products reflect
A) only the values that society places on those products.
B) only the costs to society of producing those products.
C) both the values that society places on those products and the costs to society of producing those products.
D) none of the above; when the "invisible hand" guides economic activity, prices of products are set by the government in a manner that is thought to be "fair."

Question

Quizplus · Accepted Answer

The "invisible hand" operates in a free market economy where prices of products are determined through the interaction of supply and demand. As a result, prices often reflect both the values that society places on those products and the costs to society of producing those products. For example, if there is high demand for a product but low supply, the price will increase, reflecting both the value that society places on the product and the higher costs of production. In a free market economy, the government does not set prices directly, so choice D is not correct. Choices A and B are also incorrect because they suggest that prices reflect only one aspect of economic activity, rather than the interplay of supply, demand, and costs in a market economy.

When the "Invisible Hand" Guides Economic Activity, Prices of Products