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9 September, 03:55

Why is adam Smith's invisible hand theory so important to a functioning free market system

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  1. 9 September, 04:22
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    The term invisible hand was coined by Adam Smith in his book The Wealth of Nations. Adam Smith is considered by many to be the father of modern economics and is one of the most important theorists of economic liberalism.

    According to him, if the economy were free, without any intervention from external agencies or the government, it would regulate automatically, as if there was an invisible hand behind everything, causing the prices of products to be dictated by the market itself, as per your need.

    This is the basis of economic theory and it has been proven to work in practice. When the market is scarce for a particular product and there is a huge demand to buy it, sellers automatically raise the price of that item, as there will still be interested consumers.
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