How does general equilibrium theory support the idea of the invisible hand?

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ANSWER: The general equilibrium theory states that once an economy reaches general equilibrium, no one in that nation could be made better off without making someone else worse off. This is a specification of the idea of the invisible hand of Adam Smith's that if everyone in an economy works in a perfectly competitive market to advance their own self-interest, and firms maximizing their profit, everyone will attain economic gains and advancement. Invisible hand is an unobservable market force that helps the supply and the demand of goods in a free market for reaching the equilibrium automatically. The overall message here is that it is in usually a good idea for not interfering in highly competitive markets. Thus, if people were permitted to trade freely, self interested traders present in the market would compete with each other, as a result will move markets towards the positive output with the help of an invisible hand

Rahul Sunny answered 1 year ago

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