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Economics 101: Invisible Hand Theory | SterlingTerrell.net

Economics 101: Invisible Hand Theory


What is the invisible hand theory?

The Invisible Hand Theory is is nothing but a market economy.

Adam Smith first spoke of the "Invisible Hand" in his classic book, Wealth Of Nations.

This is where good and services are rationed through prices, and goods and services are allocated in an efficient way.

This concept was born out of simple behaviors of human observation.

For example:

If the quantity of something is greater than the demand for it, prices tend to fall.

And, if the demand for something is greater than the supply of it, prices tend to rise.