Why is demand and supply referred to as the "invisible hand"?
Answer:
It is a concept from Adam Smith, although as the quotes below attest, he didnèt mean it in the way we now use it.
No person is actually directing, send this resurce here, send that resource there, the mechanism of prices acts to move resources around efficiently as if an invisible hand was doing it.
Because "the market" sets prices, not a single man with a "visible hand".
A hand can control and manipulate items. Supply and Demand manipulates your selling ability. It's the control that gives them their similarity.
Demand and Supply are referred to as the "Invisble Hand" was indentified by Adam Smith, whose book, states that these are the market factors that cannot be seen, but are truly there driving the prices of products higher, and raising the prices of commotities. You can read more about in "The Wealth of Nations".
""The invisible hand is a metaphor invented by Adam Smith to illustrate how those who seek wealth by following their individual self-interest, inadvertently stimulate the economy and assist the poor. ""
Adam Smith's metaphor refers to how demand in the free market leads producers to make things that people want, even if the producer didn't start out knowing what is wanted. For example:
Suppose Ford made some red Mustangs and some white Mustangs. Ford has no way to query every person in America to see what color they'd prefer, so Ford tries both colors. Now, suppose that Ford then discovers that no one buys the white Mustangs. But people are buying the red Mustangs like crazy, and car dealers are selling them so quickly that they jack up the price by $2000, and they keep ordering more red Mustangs from Ford. So now Ford spends its money and factory capacity making red mustangs instead of white ones, because they now know that's what people want.
Here, Ford didn't know what to do at first, but they were guided toward making the red cars by feedback from the market. They were guided as if by a hand.
The answers post by the user, for information only, FunQA.com does not guarantee the right.
More Questions and Answers:
More Questions and Answers: