Asked by Chris Gladden on May 23, 2024

verifed

Verified

How does the "invisible hand" work in a competitive market system?

Invisible Hand

A concept introduced by Adam Smith to describe the unintended social benefits resulting from individual actions when individuals pursue their own interests.

Competitive Market System

A market structure characterized by many buyers and sellers, free entry and exit from the market, and products that are similar.

  • Understand how the "invisible hand" mechanism operates within competitive markets to allocate resources efficiently.
verifed

Verified Answer

CN
Chizoba NnakweMay 26, 2024
Final Answer :
The invisible hand is at work as businesses and resource suppliers seek to further their self-interest. The competitive system not only maximizes profits for individual producers but also, at the same time, creates a pattern of resource allocation that maximizes consumer satisfaction. The invisible hand organizes the private interests of producers in a way that is fully in sync with society's interest in using scarce resources efficiently. Striving to obtain a profit produces highly desirable economic outcomes.