How resources are allocated Essay

An stintingal ashes is the result of individuals (consumers and producers), groups (firms, trade unions, political parties, families etc) and the regime coming to come outher and interacting in a legal and accessible society. The function of an economic system is to re cryst bothize the basic economic b an separate(prenominal) scarcity which means that the resources be limited further wants argon infinite. This statistical distribution has three dimensions* What is to be produced* How is it to be produced* For whom is it to be produced.thither are 2 economic systems which are comm unless used world-wide. There are the drop market system in which the role for the political science is limited and the aforethought(ip) system where the disposal takes viturally total control. In twain of these systmes there are different methods of resource allocation used. There are economies that use a multifariousness of these systems in particular the planned and uninvolved market syst em also known as the mixed miserliness in which roughly of the decisions resource allocation are done by the disposal and other by the unrestricted.In a free market economy*The factors of work are owned by private individuals or groups of individuals who own the resources. They past rent them out to the firms so that they can produce the goods and run.*Everyone is motivated by axenic self interest. Consumers tap welfare, firms maximize profits and privated individuals aim to tap rents, wages interest and profit.*Firms can sell any occasion they want. They respond to the consumers who are al disordereded to by anything that is sold by the producers.*The level of competition is very high. Firms are competing urgently for customers and the consumers are competing with each other for the goods on offerHow are resources allocated chthonic a market tool?What is to be produced?In a unclouded free market, it is the consumer which determines the allocation of resources. Consume rs are sovereign. Each consumer has a free extract on the amount of currency to spend on goods and services. Firms with the specie recieved, corrupt the factors of fruit needed to produce goods and sercives. In other words in a free market a firm allow for only produce what the consumers are prepared to buy.The consumers are the ones to dicate the goods that should be produced. For lesson the human beings decides that they want to buy more than product X than product Y. The outgrowth in demand for product X pass on increase the wrong at first. The production of product X testament increase since many an(prenominal) new first go away get attracted with the idea of profit and at the same time the level of competition go forth increase. On the other go across for product Y the demand will fall along with profits. In general there is a transfer of resources from one industriousness to another.How will it be produced?There is competition between the various firms. Consum ers will buy from the producers which offer the lowest price. So producers must produce at lowest cost. This indeed determines how goods are produced. The firms will adpot the lowest cost technique of production hence resulting in productive efficiency and allocative efficiencyFor whom will it be produced?The amount of money the consumers spend is determined by their income. This affects the factors of production since those with high invomes will be able to consume more of the goods whlist those with low income can only buy few goods and services.There are almost advantages in a free market economy*Resources are allocated more efficiently.*There will be a much larger pick of goods and services*Firms will keep on innovating and produce better gauge products since there is a high level of competition*Higher economic growth rates Economic systems with a free market case hurt grown much faster than those with a command economy.For example with the restaurant Mac Donalds the demand is high because the consumers find it at rest to just drop by and have a meal inside a matter of minutes, and since the consumers demand more the try of it is also large.A command economy has a very powerful political relation arena and the workets and consumers are subordinate. The resources are allocated through with(predicate) a planning mechanism. Some goods and services are prvided free and somewhat rationed or soldThe characteristics of a command economy* Factors of prodction are owned publicly by the government* No one think of himself Everyone is assumed to be working for the greenness good* There are no free endeavour* There is very little competition which gives rise to black markets* Since there is no competition there is no price mechanism. The authorities set the prices, and they are forced to set the prices low to open sure that it is affordable to everyone* The government has the responsability of planning how all the resources should be used. Th e decide what should be produced and in what quantities. In other words they set the output and price levels.What is to be produced?The consumer does not have any control at all on what will be produced. The planners or the government decide what will be produced, but the main problem which arouses is that the government does not know what exactly the consumers need. In other words supply is dictated by a governing dust which tries to predict demand however this process is very unvoiced and it leads to heavy losses.How will it be produced?There is no such thing as firms in a planned economy. The government direct the resources into producing units They have no autonomy, so basically the government decides the quantities of output and the methods of productionFor whom will it be produced?The government tries to distribute the output of the economy more fairly. compensation are determined by the planners and so are the prices of the goods produced. So the government is effectively determining how much each consumer can consume. They also think that all consumers get equal amounts.Advantages of a planned economy* The material government will make sure that public and merit goods are consumed that the right levls and that demerit goods are banned or taxed heavily* The government will try to make sure that nobody falls through the safety net. It will be a fairer economy evening though it is likely to be less successful overall.* Command economies can make sure that the prodction processes that they chose are as environmentally friendly as possible. They should be able to make sure that the level of output is the socially optimal level of output.For example in Russia the government decided to produce jeans at a large scale but wad were importing levis jeans and were merchandising them for a much cheaper price. this meant that the government lost a lot of money since they predicted that the people needed jeans but in reality they did not and even though they lowered the prices there were still huge amounts of stock which was not sold.A mixed economy as the name implies is a mixture of a planned economy and a free enterpirse economy. In pure practice no pure planned economies or free enterprise economies exist in the world. It is a mixture of the two extremes and the degree of combine depends and varies from one society or country to another.Characteristics of a mixed economy* The government owns some of the countrys factors of production publicly and some are owned privately* The market part of the economy will be motivated by self interest. First will maximise profit consumers will maximise their welfare and the factor owners will maximise rent interest and profit. The government on the other side has the putting surface good goal.* There are only free enterprises in the free market part of the economy* The level of competition will pull up stakes on the degree of mix. and it will depnd on the market structure.* The price mechanism operates in the private sector. its efficiency depends on how competitive the market structures are. The government run activities.Many countries or economic systems have attempted to solve the resource allocation problem by reaching a compromise between the free market and planned economy systems. For example a governing body may decide that the production possibility marches (ppf) has potential to increase if education and health services are provded to the public and indeed enforces this, thus supplying it for free this must be stipendiary for by taxes which encourage a planned economy approach. However the residue of the economy follows a free-market modelThe government needs to decide the perfective aspect balance between these two factors. If people are healthier then they are more educated and the more educated the healthier. This means that they firms will be able to have better do workers. This in wrick will mean that the taxes will increase and the government will g et more money. This money can be invested into rectifyments in technology and resulting in an increase in the ppf. For example the UK offers free NHS this means that more money can be spent on education and train people and this can lead to an improvement in techonology. On the other hand the better the education means that people are better qualified and more people can become doctors and thus it will improve health services.Though there are 3 main types of economic systems which sue three different methods of resource allocation, there is often, in genuine countries a tendency to use mixed economic methods in which both aspects of the free market and the planned economy are present. In growing countries there are approaches to the problem of resource allocation using all 3 methods.In a free market economy supply is dictated by demand, the bigger the demand the bigger the supply and thus the price of the product is given. In a planned economy the governing body makes those decis ions, supply is dictated by a governing body which tries to predict demand however this proves very difficult and it supplies goods to its wish and in a mixed economy supply of certain guds is dictated by a governing body and the others by demand.