What is the Invisible Hand in Economics in simple words
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People what to buy vanilla beans. It’s hard to grow vanilla beans, so people don’t want to do it. So there aren’t very many vanilla beans. There is high demand but low supply. The people with the vanilla beans realize they can raise their prices, since there’s not a lot of competition, and while not every can or wants to pay a higher price, someone will. The high price of vanilla beans makes people want to grow vanilla beans, since they can be sold for a high price. Now more people are growing vanilla beans, the supply increases, the price falls.
Eventually you reach an equilibrium: the right number of people are farming vanilla to produce a supply just big enough to satisfy the market. Produce any more and the price falls, making people want to quit vanilla farming and do something else. Produce any less and the price will go up, attracting people to vanilla bean farming.
Apply the same idea to the production of every good and service and you see that without any overall management or central planning the overall economy produces what everyone wants, as if by an “invisible hand”.
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