What is the Invisible Hand in Economics in simple words
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It’s about utility, trade, and competition.
If I value my widget at 5 Utiles and a buyers money at 7, and a buyer values it at 7, then we trade. He values his money at 5, so he gives me his 5 worth of money, and I give him my 5 worth of widget. Now we both have something worth 7 instead of 5 and between the two of us 4 units of utility are created in society.
Now enter competition. Another guy can produce the same widget for 2 and sell it for 4. The buyer still values it at 7, so he pays 4 and gets seven. The new seller gains 2 like the other one but will sell more because it’s cheaper, and the buyer gains 3, so now 5 units of utility are created in society are created in stead of 4, and the new guy will gain market share and be more profitable potentially with the ability to produce even cheaper as he gets more efficient.
So now we have incentives in the market for the widget to produce goods for cheaper and or better depending on how the value relationship works out. More utility is created in society and products become more and more affordable and on the quality end products become more and more useful. Society progresses and quality of life improves. This is classic micro, and we owe the modern era to this process. “The invisible hand” drives society to increase utility which ultimately equates to a better quality of life. It’s important to note though that it’s is all
Based on perception of value. A unit of utility is a highly personal thing. Everyone’s will be different, but there are laws and averages we can rely on like “The law of diminishing marginal utility”.
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