Role of Markets in Societal Resources Allocation - Essay Example

ROLE OF MARKETS IN SOCIETAL RESOURCES ALLOCATION Introduction Economics is the study of scarce resource utilization for maximum utility. It involves the study of how an ordinary man gets income and spends it. Economics is divided into two; macro and microeconomics. Macroeconomics examines the economy as a whole, focusing on the aggregate production, savings and investments. Microeconomics on the other hand studies individual household or individual market (Joshua Gans, 2011). Social policy is the study of how social issues and the society basics and guidelines affect scarce resources. Social policy includes societal resource allocation hence linking the economics markets to the social policy. Economics in social policy is then the study of the effective use of the scarce resources in the practices and actions of public policy. It sees the best utilization of the resources for maximum utility in providing social services like education, health and human services (Samuel, 2010). The role of markets in societal resources allocation Market has a definition as a place where buyers and sellers meet readily for selling and buying. Buyers are willing to acquire goods and service at a price while sellers bring their produce to offer the customers at a cost. The difference in prices is at the end brought to equilibrium. There is need to allocate societal resources appropriately because they are scarce hence standing no chance of wastage. In the market, the market forces determine the amount sold and bought. Societal resource allocation by the markets determines the equilibrium prices and quantity of the goods and services. There are three main markets economies, which allocate resources according to the forces of demand and supply forces (Sexton, 2012). Additionally, market economy allocates societal resources through decisions of the different interactions between the production firms and individual households. The different three market economies all operate within the society, they should all consider working within the frameworks of the society like avoiding child labor, and keeping environment clean, producing commodities fit for consumption, commodities up to the standards with or without government intervention. The market economies may include; Free market economy In a free market economy, the allocation of resources is done as per the demand and supply that are referred as the market forces. Buying and selling in a free market economy are done voluntarily without influence of any factor apart from the market forces. Since the market is free from government interventions, forces of demand by consumers and supply by the producers interact freely hence determining the right price to sell at and the right quantity to produce. Free market economy expresses a principle of laissez-faire economy since it has no any form of restrictions, government taxes to meet, tariffs, subsidies and other government regulations (Jack Quarter, 2009). Consumers dictate the quantity of production because their expectation or demand is what needs to be satisfied. They have the maximum price to pay while sellers have the minimum they are willing to offer their goods. Both the supply and the demand curve meet somewhere determining the equilibrium price and equilibrium quantity. Sellers offering products at a lesser price will have some producer surplus in production while buyers willing to pay a high price get consumer surplus (Martinez, 2009). Therefore, it is necessary to offer and give the best to avoid market surpluses. Consumers and producers have the ability to go after their self-interests freely without any intervention from third parties or external forces like the government. Free market economy is comprised of three main fundamental determinants; what to produce, how to produce and for who to produce. Existing consumer preferences and tastes determine what to produce for the market since the demand for a product ignites the production process and producers involve their resources to get the best for their buyers. Producers search for profits hence determining how to produce. To acquire maximum benefits, the producers choose to use the best production process. Finally, the purchasing power determines whom to produce. The purchasing power is compared to the market price and those able to purchase are said to have high purchasing power (Martinez, 2009). However, income inequalities in the society are an emerging challenge to the system. To ensure equal income distribution or distribution of the economic prosperity in the society, there is a need for some social welfare controls. The social welfare controls may include taxation and other administrative costs. Free market economy can also create monopolies since no one is watching and providing the necessary measures required for business and competition. That calls for government intervention in the market economy. Command market economy Command market economy is the system where production and investments are in a plan formulated by the central governing body. It is termed as the planned economy. Planned economy is aimed at improving production and coordination of the available market information for efficient and effective production and investment. Command market economy is applicable when the government is after allocating its resources. The government can do that through its state-owned organizations or through directing the private organizations. It is also called the centrally planning economy (Samuel, 2010). Unlike the free market economy where there is no government intervention, command market economy involves an authority by the government in societal resource allocation. Government can control resource allocation in numerous ways like implementing the taxation system. Command market is best in times of crises because it is then that the state may be in need of better resource allocation. In this economy, government preferences determine what to produce, government and the employees determine how to produce. The employees need high training and skills to give the right quantity and quality. Government preferences determine who to produce to since it is the government in control of the demand rather than buyers. The government assumes the role of the buyers because it has projects, which need products. The government buys for different reasons like for infrastructure developments and provision of products in times of calamities. The government as a single entity also has responsibilities of providing social amenities for the society. That is achieved by investing in those public organizations that seem not attractive for the private sector because of their initial large capitals, as well as low returns. The government does plan alone. It is not the best for an economy that needs prosperity (Tucker, 2010). Through the command market economy, the government is able to attain its economic objectives with ease. That is only possible because it plays a role in planning, allocation and use of the societal scarce resources. The government can also help in economic prosperity distributions where it entails making sure that there is equity in income distribution among the society members. The distribution is made after successfully allocating the resources hence giving some maximum utility which the transforms to economy transparency. Mixed market economy Mixed market economy combines the two above economies. Mixed market economy is said to have both the state and private sectors in the economy hence free market economy and the command economy. Mixed economy has both private sector and public sector. The two systems, private ownership and public ownership are in operation whereby all work towards maximum use of the societal scarce resources. The government gets involved in initiating and implementing policies like environmental protection, social welfare raising, employment standards as well as competition control. It simply creates a regulatory environment that is not in existence in a free market economy(Samuel, 2010). In the private sector, the resources are allocated as in free market economy while in the public sector resources are distributed as in the command economy. Private ownership depends on the market forces of demand and supply in the determination of the equilibrium price and quantity. Both the government and consumers play a critical role in societal resource allocation. Customer preferences and partly government determine what to produce since the two have the same status of a buyer with different needs, producers in search of profit and partly government determine how to produce while the purchasing power and partly government determine for whom to produce. That considers the maximum price the customers and the government partly are willing to buy the goods. Mixed economy is the one in operation in many economies. The private can take charge when the government fails in societal resource allocation (Jack Quarter, 2009). Conclusion Societal resources are scarce and there is a need for better utilization for maximum utility by the society. Developments are only attained when there is a fair societal resource allocation and utilization strategies. Societal resources should be properly put into use to ensure balanced development in the society and economic prosperity equality. Societal resource allocation is best done by the above three market economies available. The first market economy is the free market economy which entails free trade without any form of government intervention but only the buyer, producer and maybe the owners of factors of production. It is free to enter the market and free to leave since government restrictions are not in place. The second discussed economy is the command economy or the centrally planned economy where resource allocation is the responsibility of the government. The government lays down plans for resource allocation and utilization, which can enable proper resource allocation. The last method is the mixed economy, which tries to incorporate both the private sector and the public sector. It has free market economy and the command economy features. The market sources and the government, which is said to be in command, allocate societal resources. Mixed economy is the most common in the prospering economies because the government not only allocates resources but also provides necessarily legal regulations. The best market economy out of the three is the mixed economy where the market forces determine price and quantity of supply and governments intervene in regulations like competition control. The less preferred is command market economy because it is related to capitalism to some extending in many countries hence a challenge to the society. References Ian Shemit, M. M. (2010). Evidence-Based Decisions and Economics. New Jersey: John Wiley & Sons. Jack Quarter, A. A. (2009). Understanding the Social Economy. Toronto: University of Toronto Press. Joshua Gans, S. K. (2011). Principles of Microeconomics. Boston: Cengage Learning . Martinez, M. A. (2009). The Myth of the Free Market. Boulder: Kumarian Press. Samuel, P. A. (2010). Economics. Noida: Tata McGraw-Hill Education. Sexton, R. (2012). Exploring Macroeconomics. Boston: Cengage Learning. Tucker, I. (2010). Economics of Today. Boston: Cengage Learning. Read More