“Invisible hand” in economics

29 Jun

“Invisible Hand” in Economics
Firms and resource suppliers want to increase their revenue and seek their own self-interest, so that they are like guided by an “invisible hand”. In this environment businesses are the least costly producers of goods and services, because this is their interest is to get higher revenues. In the same way, using few resources to produce goods is in interest of demanders.
Businesses want to make higher profits; resource suppliers want higher rewards, so both of them manipulate resources usage order to get best allocation of them for the entire society.
Competition of self-interests unintentionally furthers fulfilling of society’s needs. The “invisible hand” maximizes profits of firms and also it maximizes the output and wish-fulfillment.
Most important characteristics of market system are:

  • Efficiency– Market system produce only that goods and services that are most demanded by society. It forces using the most efficient techniques of production, so that in increases the total output.
  • Incentives– Market system requires hard-work and innovation. So ones who are working a lot, get better results and efficiency, so that they also get higher revenues. Implementation of new efficient production techniques also offers higher revenues.
  • Freedom-Firms and industries can enter or leave the industry when they want. Entrepreneurs and labour force are free to seek their own self-interest, so that they may get better results or big losses.

Key Terms:
Invisible Hand-The ten­dency of firms and resource suppliers seeking to further their own self-interests in com­petitive markets to also promote the interests of society as a whole.

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