What does the invisible hand in the marketplace do?
The invisible hand is a term coined by Adam Smith in the 1700s
to describe the operation of free markets. The general idea is that
individuals pursuing their own self interest ends up doing what is
best for society "as if guided by an invisible hand".
As an example, when the price of a goods increase due to higher
demand or lower supply, more people will start producing this
goods. They do this out of self interest, tempted by the high sales
price, but it also benefits society as a whole since the larger
supply will make the goods available to more buyers as well as
driving the price down again.
The short answer would be 'allocation': The invisible hand puts
more resources into producing goods for which there is a shortage,
as evidenced by high profit margins, at the expense of goods for
which there is a surplus, as evidenced by low or negative profit
margins. And the invisible hand keeps doing these adjusments
continously without anyone planning or ordering that society should
produce more of what it needs and less of what it doesn't
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