We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Nobody downloaded yet

The market mechanism is the only effective way to allocate resources. Discuss - Essay Example

Comments (0) Cite this document
Summary
Macro & Micro economics Contents Contents 2 Introduction 3 Discussion and Analysis 3 Conclusion 8 References 9 Introduction Every economy seeks to find a solution to the basic economic problems. Since the amount of resources available to a particular economy is scarce but there is no limit to the human wants there should be a technique in which this allocation should be done…
Download full paper
GRAB THE BEST PAPER
The market mechanism is the only effective way to allocate resources. Discuss
Read TextPreview

Extract of sample
"The market mechanism is the only effective way to allocate resources. Discuss"

Download file to see previous pages 8). This essay looks into the various aspects of the competitive market economy and analyses the fact that the resources can be allocated most efficiently if the economy operates in a competitive framework. Discussion and Analysis In a free market economy the price and the quantity of the product demanded is determined by the market forces of demand and supply. According to the theory of demand as the price of a product increases the quantity demanded for the product gets reduced. On the other hand, other things remaining constant as the price of a product decreases the demand for the product increases. The inverse relationship between the price and the demand for a commodity gives rise to a downward sloping demand curve. The supply curve for a commodity is however upward rising curve. The equilibrium price and quantity is determined by the interaction of the demand and the supply curves (Samuelson and ?Nordhaus, 2010, p. 57). This market mechanism has been explained with the help of the following diagram. Figure 1: Interaction of Demand and Supply Source: Besanko and Braeutigam, 2010, p. 36 In the figure it is seen that the initial demand curve id D1 and the initial supply curve is S. Now the market will reach equilibrium at the point A where the quantity demanded for the product would match the quantity supplied. At this point the quantity demanded would be Q1 and the quantity supplied would also be Q1. The price at which the market equilibrium would be reached is P1. This price is neither determined by the buyers or the sellers but the combined forces of the demand and supply existing in the market. Now suppose the market demand for the product increases from D1 to D2, with the same level of market supply the price of the product will increase to P1 and the quantity demanded of the product would increase from Q1 to Q2. Hence the new market equilibrium would be changed to B. At the point B the quantity demanded would match the market supply. The demand curve would shift to the right due to a variety of reasons. When the income of the individuals increase the disposable income of the people would increase and it would lead to a rise in the demand for a particular product. Similarly the supply of products may also decrease due to a variety of reasons. When the price of the raw materials increases the firms are not able to supply the product at the same cost. Thus the supply decreases. As a result the equilibrium price and quantity would undergo change. Figure 2: Shifts in the Supply Curve Source: Besanko and Braeutigam, 2010, p. 36 In this figure the reduction in the supply of the commodity pushes the supply curve to the left. The quantity supply reduces from Q1 to Q2 but the price increases from P1 to P2. Therefore at the same level of market demand the new equilibrium is formed at the point B. The demand and supply forces would act naturally in a free market where there are no restrictions by the government. This is true for the perfectly competitive markets where none of the buyers or the sellers has the power to control the price in the market. Therefore a competitive market is one in which there would be large number of buyers and sellers (Petri, 2004, p. 77). The sellers would have their aim to maximise the profit of ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“The market mechanism is the only effective way to allocate resources Essay”, n.d.)
Retrieved from https://studentshare.org/macro-microeconomics/1492589-the-market-mechanism-is-the-only-effective-way-to
(The Market Mechanism Is the Only Effective Way to Allocate Resources Essay)
https://studentshare.org/macro-microeconomics/1492589-the-market-mechanism-is-the-only-effective-way-to.
“The Market Mechanism Is the Only Effective Way to Allocate Resources Essay”, n.d. https://studentshare.org/macro-microeconomics/1492589-the-market-mechanism-is-the-only-effective-way-to.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document
CHECK THESE SAMPLES - THEY ALSO FIT YOUR TOPIC
Food Legislation is an effective way to protect Public Health Discuss
FOOD LEGISLATION: AN EFFECTIVE WAY TO PROTECT PUBLIC HEALTH? The past decades were marked with the rapid evolution and transformation of food legislation in the UK and the rest of Europe. Conventional elements of risk mitigation and control were abandoned, giving place to the implementation of numerous self-regulatory mechanisms of food quality evaluation and control.
12 Pages(3000 words)Essay
Food Legislation is an Effective Way to Protect Public Health Discuss
The intake of food therefore needs to be controlled. Now, while this can be regulated at the personal level, certain external stimuli can only be monitored and restrained through proper and suitable legislation. Food legislation comprise of the set of laws, which rein the processes of production, processing and retailing the food products.
11 Pages(2750 words)Essay
Market mechanism and public service delivery
In other words, it is expected that the public administration become competitive in delivering goods and services. Governments are expected to strategise a country's developmental priorities by providing an efficient, responsive and transparent public administration.
5 Pages(1250 words)Essay
Is a Shared Services Model of Human Resources an Effective Way to Deliver HR Services
Also, they do not take into account the role of external environment as a major limitation of "a shared services model", and diminish the role and impact of poor staff performance. The resistance to change is another disadvantages of "a shared services model".
10 Pages(2500 words)Essay
A business's only responsibility is to maximise financial returns to its a shareholders
The different concepts in business on returns, profits and shareholder investments such as returns on assets and equity will be examined. After an introduction on what
8 Pages(2000 words)Essay
'Dirty Pretty Things mixes realism and symbolism in a highly effective way.' Discuss
Okwe, the main character, is a Nigerian who resides in London without a visa or passport. His situation is precarious because anyone can inflict harm on him without fearing that he will report to the police. As a consequence, Okwe maintains a low profile. He
12 Pages(3000 words)Essay
Higher pay is the only way to reduce corruption. Discuss
Corruption can be a serious problem, such as when it becomes a large-scale corruption which is considered an emergent social process. The occurrence of large-scale
8 Pages(2000 words)Essay
Is imprisonment an effective way of dealing with most violent offendersDiscuss
168). Offenders and perpetrators of crime go to high extents in ensuring that they evade the law at all costs. The effectiveness
4 Pages(1000 words)Essay
The most effective way of treating depression is through regular exercise discuss
Exercise may help in reducing depression in a number of ways. A combination of exercise and other methods used to treat depression can be particularly effective in dealing with the issue of depression. This paper will discuss why exercise can be regarded
15 Pages(3750 words)Essay
Discuss the mechanism of replication
The procedure onsets when both the old strands of the ds DNA unwind in the presence of enzyme DNA helicase. Each of the strands serve as a template where DNA polymerase acts and incorporates the corresponding nucleotide. If the template strand has
1 Pages(250 words)Admission/Application Essay
Let us find you another Essay on topic The market mechanism is the only effective way to allocate resources. Discuss for FREE!
Contact us:
+16312120006
Contact Us Now
FREE Mobile Apps:
  • About StudentShare
  • Testimonials
  • FAQ
  • Blog
  • Free Essays
  • New Essays
  • Essays
  • The Newest Essay Topics
  • Index samples by all dates
Join us:
Contact Us