Economics Notes, October 19

Economics Notes

Module 3, Sections 2/3

In economics, the invisible hand, also known as the invisible hand of the market, is the term economists use to describe the self-regulating nature of the marketplace.  This is a metaphor first coined by the economist Adam Smith.  For Smith, the invisible hand was created by the connection of the forces of self-interest, competition, and supply and demand, which he believed capable of allocating resources in society.  This is the founding justification for the laissez-faire economic philosophy.

Through self interest, producers and sellers will produce and sell what consumers demand to avoid going out of business.  Through the course of this, there will be jobs provided to people, perpetuating the cycle of production, sales, and consumption.  Everyone benefits.

Private enterprise is an economic system based upon the values of private business and individual freedom.

Specialization, or division of labour, allows for greater productivity in an economy.

Economic competition takes place when a large number of producers and buyers interact in a free market in search of profit.

Individual incentive is the motivation for individuals to act in their own self-interest in the market.

Private property is a good or service belonging to an individual or company.

Dollar voting means to express your opinion on certain products by either using your dollars to buy or not buy a product.

The equilibrium point is the point at which the rate of supply meets the rate of demand.

Inflation is a time of rising prices that results in the devaluation of the dollar.  It is caused by three things:

-          Expectation (anticipation  of inflation; increased spending; increased inflation)

-          Demand pull (increased demand=increased prices=increased inflation)

-          Cost push (workers demand higher wages thus employers increase prices to cover wages, and inflation is the result)