The Market System and the Circular Flow - Essay Example

The Invisible Hand The Market System and the Circular Flow The invisible hand as used in the marketing system and the circular flow refers to a natural trend that guides capitalism and free marketers in competing with scarce resources. People pursue their own interests in order to promote the goodness of the society. For example, the brewer, butcher or baker has their own self-interests of preparing dinner. In regard to invisible hand theory, everybody acts on his or her own interests creating demand for services and goods that coerce other people to deliver those services and goods in efficient manner where he or she may receive compensation and make a profit in return (Basu, 2010).

The idea of the invisible hand suggests that when competition is assumed, public and private interests coincides. The visible hand also suggests that if the profits of the firms are maximized, the society’s output would in return be maximized. The visible hand theory has two main virtues in the marketing system where it creates room for economic freedom and allocates resources effectively and efficiently. The invisible hand theory also suggests that it is individual’s motivation that drives the growth and development of the economy.

EcoCommerce101 suggests that invisible hand theory should the concept of transaction among two individuals. The generated information is absorbed by the two economic participants, therefore, allowing proper allocation of resources. Individuals will always try to produce and provide best goods and services that the people are willing and able to buy; therefore, promoting the interests of the society (Basu, 2010). Meanwhile, the government is also responsible in regulating the types of businesses to be established in a certain region to avoid congestion.

The government uses the idea of imposing high taxes to its resources. Conclusively, it does not mean invisible hand is only beneficial to the economy, but the participants might also experience losses.ReferencesBasu, K. (2010). Beyond the invisible hand: Groundwork for a new economics. Princeton, NJ: Princeton University Press.