What does the invisible hand of the market do?
Answers
Term used by Adam Smith to describe the natural force that guides free market capitalism through competition for scarce resources. According to Adam Smith, in a free market each participant will try to maximize self-interest, and the interaction of market participants, leading to exchange of goods and services, enables each participant to be better of than when simply producing for himself/herself. He further said that in a free market, no regulation of any type would be needed to ensure that the mutually beneficial exchange of goods and services took place, since this “invisible hand” would guide market participants to trade in the most mutually beneficial manner.
Bonus
You win 10,000 Euros on lottery draw. You have a choice spending the money now or putting it away for a year in a bank account that pays 5 percent interest. What is the opportunity cost of spending the 10,000 Euros now?
Answers
The opportunity cost of spending the 10,000 Euros immediately is the 5 percent interest he/she will forgo.
