Question-1. The reason for the output-enhancing effect of the division of labour can be inferred from Adam Smith’s illustration of a pin-making factory.
a. Explain in your own words why the division of labour can lead to increased output in a production process, such as pin-making.
b. Do you think the use of more specialized machinery in pin-making would also lead to increased output? Why or why not?
Question-2. In each of the following cases, use Adam Smith’s concept of the invisible hand to explain the events that occur if the relevant markets are competitive and operate without intervention. In your answers, identify the self-interested behavior that causes beneficial results.
a. Because of Good W’s sudden popularity, suppliers of this good presently make exorbitant profits.
b. A new innovation reduces the cost of producing Good X.
c. Two neighbouring countries, A and B, agree for the first time to allow goods to flow freely between them.
Question-3. Explain why the absence of the invisible hand of competition in the following situation can lead to harmful results for the consumers.
a. A catering company wins the exclusive right to sell food in a stadium.
b. By keeping out potential rivals, a few large corporations control sales of good y.
c. A labour union, which, by law, includes all workers involved in the production of good Z, manages on the basis of a strike threat to gain a significant wage increase from employers.
Answer will be sent by email as attachment.
