Final answer:
The 'invisible hand' refers to the natural regulation in a market economy where self-interested behavior leads to social benefits. It results in efficient resource allocation, leading to competitive pricing, innovation, and economic growth, as well as improved products and more employment opportunities.
Step-by-step explanation:
The invisible hand is a concept introduced by Adam Smith, which describes the self-regulating nature of a market economy. This metaphor highlights how self-interested behavior by individuals can lead to the betterment of society as a whole.
In a purely competitive economy, the invisible hand effects are such that businesses seeking higher profits end up producing what consumers demand. This results in the efficient allocation of resources, often leading to competitive prices, innovation, and economic growth without the need for centralized control.
When companies compete to sell products and services, they strive to offer better quality at lower prices to attract consumers. The consumers' quest for the best deals, in turn, incentivizes producers to innovate and operate more efficiently.
As this cycle continues, it usually brings about positive social outcomes like more employment opportunities, improved products, and services, and general economic prosperity.