Resource Allocation Economics for Business & Management Abstract In this section of the assignment we focus on the question: “Examine the arguments in favor of a free-market system of resource allocation”. (Negru, 2011) The arguments for and against a free-market system are not black and white, therefore they have been discussed among economists for hundreds of years and no solution or conclusion has been found yet.
In this assignment we briefly discuss the basic concepts of a ‘Free-Market’ economy as well as the ‘Command-Market’ system and how our present economic structure relates to them with a final focus on resource allocation in a ‘Free-Market’ system. Introduction “A problem facing all consumers is that whilst our wants (desires) may be unlimited, our means (resources) to satisfy those wants are limited” (Griffiths and Wall, 2008).
This basic theory of economics shows the main problem the market faces. It leads to the question of how to allocate scarce resources among a variety of products.
The limitations can be shown in a ‘Production Possibility Frontier’ (PPF), where the limited amount of resources can be divided up between two products. Although it’s a good and easy method to identify boundaries and Figure 1: PPF possibilities, other factors influencing the market have not been taken into consideration in this graph (Samuelson and Nordhaus, 2009).
The Essay on Human Resources Information System 3
A Human Resources Management System (HRMS) or Human Resources Information System (HRIS), refers to the systems and processes at the intersection betweenhuman resource management (HRM) and information technology. It merges HRM as a discipline and in particular its basic HR activities and processes with the information technology field, whereas the programming of data processing systems evolved into ...
market economy Resources Beef">free market System On the basis of a free market system, firms (suppliers) and customers (demanders) are the only two parties involved in the market (Investopedia, n. . ).
Figure 2 shows that the equilibrium point, where supply and demand intersects at a given price for a given quantity, is where producer and consumer meet (Griffiths and Wall, 2008).
Adam Smith stated that; a free market is guided by an “invisible hand”, which balances itself out without government Figure 2: Demand & Supply interference. Therefore the main belief of a pure market economy (=free market SID: 1120000 Nov. 2011 Page 1 of 6 Economics Assignment Question 1. 1: Resource Allocation conomy) is that: “Markets alone are used to allocate scare resources of land, labour and capital” (Griffiths and Wall, 2008) while “Prices (determined on markets) act as ‘signals’ to producers and consumers, bringing supply and demand into balance (equilibrium)” (Griffiths and Wall, 2008).
While the fundamental idea of a free market system emphasize the freedom of individuals to purchase and consume whatever they like, it splits the population into segments of rich and poor where the rich become richer while the poor become poorer (Economy Watch, 2010).
Social Market System Karl Marx, a famous philosopher and socialist in the 19th century tried to avoid poverty and greediness by emphasizing an economic system (later called Marxism, a form of Command economy) where government ensured that every individual is equally treated by eliminating privatization of the market. Instead of believing in the market and self-regulation through the invisible hand, the government ‘plans’ production and the allocation of resources. This social thinking leads to a nationalization of resources such as capital, land, property and companies.
The Term Paper on Free Market Economy Resources Beef
... Weststrate: 1963) The allocation of resources in a free-market economy is governed by the individual's decisions, within the market, guided by self interest whereas the ... certain factors affect the market system. Monopolies are a perfect example of market failure and the disadvantage of the free-market system. Barriers to entry prevent ...
Although many “mainstream economists” in the early twentieth century were pro-socialists, Ludwig von Mises and Friedrich Hayek tried to prove the errors associated with social economic systems (Scarlett, n. a).
Mises stated in his book ‘Socialism’ that government planning causes a “lack of calculation” (Mises, 2009), referring to non-pursuing of maximizing profits and loss avoidance (Yeager, n. a. ).
and destroys incentives for innovation from individuals while Hayek claims: “This is not a dispute about whether planning is to be done or not.
It is a dispute as to whether planning is to be done centrally, by one authority for the whole economic system, or is to be divided among many individuals” (Brainyquote, n. a. ).
Today: Mixed Economy System Briefly summarized in Image 3, there are many pros and cons among both extremes of an economy. Today’s economies in most countries of the world have now drifted away from a social concept toward a mixed economy where most important and basic human
Arguments in regard to resource allocation While on the one hand socialists could argue that in a market economy scarce resources are wasted because of the trial and error approach of firms and products. Capitalists on the other hand may counter that in a planned economy governments produce goods individuals don’t necessarily want or need and cannot react to trends and preferences quick enough because of the heavy bureaucracy. (Griffiths and Wall, 2008)
Conclusion As we see above, a free market system has the freedom of choice and is dependent on customer wants, needs and preferences and allocates scarce resources according to those signals. Personally I belief that free market system outruns other economic system through the focus on individual wants and needs. Nevertheless is a certain control by government authorities necessary to avoid market failures such as the abuse of market-power and environment. As we currently experience is the greediness of a few enough to bring economics to fall.
