The Invisible Hand

Adams Smith 's concept of the market as if it were a hand , guides firms that look only to satisfy their own self interest to produce precisely those goods and services that consumers want . In 1776 , the Scottish moral philosopher and economist Adam Smith wrote in Wealth of Nations ' why we end up having exactly the kinds of food we enjoy at our table , It is not from the benevolence of the butcher , the brewer , or the baker that we expect our dinner , but from their regard to their own self interest . Smith

assures us that there 's no need to thank the butch , the baker or anyone else who provides us with the goods we consume . These goods are provided only because producers hope to gain by providing them and there is no need to worry about self-centered motivation because working for their own self-interest work to our advantage . Smith explains it like this , Every individual generally neither intends to promote the public interest , nor knows how much he is promoting it . He intends only his own gain . And he is in this led by an invisible hand to promote an end , which was no part of his intention By pursuing his own interest he frequently promotes that of society more effectually than when he really intends to promote it ' In other words , greed can end up promoting munificence . The invisible hand Smith refers to is more or less the market . Tied into consumer sovereignty the product market guides producers to produce exactly those goods that consumers want and in this way transforms producer 's private interest into public interest

Because we cannot have everything we want we are forced to make choice We must choose to produce some goods and services and not others . This can be difficult for some , for example a child with a gift certificate to a toy store . It can take them all day before they decide what they want . Once they choose they aren 't as happy as you would think because they couldn 't get all of what they saw and wanted . Life is like that Scarcity governs us . Because we cannot have everything all at once , we are forced to forever making choices . We can use our resources to satisfy only some of our wants , leaving many others unsatisfied . The quantity of other goods that must be given up to obtain another is called opportunity cost . You think about the opportunities that you gave up , but you make choices . The opportunity cost of producing a good increases as more of the good is produced . The law of increasing costs is based on the fact that not all resources are suited to the production of all goods and that the of use of a resource in producing a good goes from the most productive resource unit to the least . The opportunity cost of producing each additional unit of capital increases as more of the units are produced

Price always tends towards...