Question

4) The second big economic question refers to Adam Smith's invisible hand. What did he mean by the reference and why is it important in market economies?

Answer 1

The concept of invisible hand which was given by Adam smith was the theory of unseen determinants that can lead to the change in free market. This theory is mainly present in the kind of market system where there is no government intervention. The concept got introduced by Adam in his one of the books initially and then accepted to various market forms practically later. According to Invisible hand, various factors that are used in free market drive the benefits in the economies that are actually better than that drive out by the ones with government intervention. According to him, the government interventions are not useful for the economy. The government intervenes with the motive to benefit the people and the society but ends up destroying interests of both. It restricts many activities which could have been done had not the government intervened.

It is very important for the market economies. In a free market when everybody trades or exchanges, they do it for their benefit first and this benefits the economy as a whole. This is beneficial for the economy to grow. This way goods and services are exchanged and produced in the best possible way or efficiently. Free sort of competition exists in this type of market which lets the price negotiable. Only those goods would be produced that are demanded and that’s where the investment’s going to be.

So, this is how the economy and the concept of Invisible hand given by Adam Smith works in the market economies.