Question

What does the "invisible hand" of the marketplace do?

Short answer

The invisible hand leads the market forces to determine the equilibrium price and quantity of a good or service.

Step-by-step solution

Meaning of Invisible Hand

The invisible hand refers to an unobservable force that comes into existence in the case of a perfect competition market.The interaction between sellers and consumers eventually leads to a stable state where the quantity demanded is equal to the quantity supplied. There is no excess demand or supply.

Role of Invisible Hand in the marketplace

The invisible hand helps in deciding the price at which the market exchange should occur. This is the price where the willingness of consumers matches the minimum acceptable price of the producers. It maximizes the total surplus and results in allocative and productive efficiency in the marketplace.