Strengths of a Market with Decentralized Resource Allocation - Literature review Example

Discussion on the strengths of a market with decentralized resource allocation The decentralization policy ofresource allocation derives an understanding among economists as ideal in the spread of equity in margins of satisfaction and development. Different theorists argue on different economic models in the approaching the markets. Ideally, economists derive markets as determined by the availability of the required resources with a ready seller and buyer for the product (Block, and Block, 2008:56). However, the markets deviate because of the demand and supply levels that shape the market conditions. The following context is a depth discussion of free market enterprise economies with incorporation of the liberalists and socialists approaches. Innovation The free market economies are crucial for general growth of a country as the production factors seem to coincide with the market forces in exploitation of resources to achieve improvement in lives through the satisfaction of consumer needs (Lightenstein, 2005:56). Economists argue that free markets comprise of sellers of different products and buyers to the different products and the extent at which these factors prevail without coercion is the best of economic growth. Mainly, supply of the products is dependent on demand levels prevailing in the market. A supplier defines a particular need for a product in the market and depicts on the best method of solving the consumer need (Block, and Block, 2008:58). At this point, the supplier shall indulge in the process of developing a product tailored to cater for the anticipated need. Producers to new products in a free market find ease in accessing value through the effective ascertainment of anticipated needs from the target consumers. This occurs from the essence that the consumer expresses the needs he feels deprived of and at that point, the innovative and knowledgeable producer gains access to a product idea (Kasper, 2006:122). A producer should depict the market eyed on and establish the probable rate of competition that may prevail in the market. Economists hold on innovation as of critical value to enhancing production and increased economic performances at the long run (Barth, Lin, and Wihlborg, 2012:43). For example, a new product in a free market enterprise encourages different producers to derive a norm that producing towards the different consumer needs could be beneficial to the urge to grow. As Smith established in the 18th century, suppliers derive the urge to produce just as the consumers derive the urge to purchase a given. Studies depict that innovative supply of products is positive to growth in the economy. For example, a new product in the market would imply to a new demand and supply module that will include a monopolistic competition approach. The law is that the product will gain a gradual increase in the level of demand and slowly incline in accordance to the purchase model (Lightenstein, 2005:59). This process shall implicate a level of returns on investment to the producer who shall in turn engage in production of more output to cater for the raising demand. At this point, producers shall stand the threat of competition in the absence of substitute commodities in the market. Free market economists embrace monopolistic competition as ideal in that different suppliers have distinct products thus will attract different buyers. Therefore, monopolistic competition is relative to decreased rivalry (Kasper, 2006:124). The libertarians hold on free market as ideal to the distribution of wealth and equity to the entire society in general. For example, the new products shall lead to the creation of employment rates for knowledgeable and innovative individuals. This labor force shall derive earnings from the initial demand of the product at the initial price (Barth, Lin, and Wihlborg, 2012:45). With the opposing factors remaining constant, the product demand shall increase accordingly and will be the yields to the producer. Hence, increased production shall implicate to increased sells and increase in the economies of scale. At such a point, the producer will fuel economic growth through the expenditure on salaries, wages, and payment of revenues (Lightenstein, 2005:62). These economic gears will appear in the dimensions of increased per capita incomes and gross domestic product (GDP). The factors shall further implicate on an increased balance of payment, foreign economic rates, and gross national income (GNP). The growth rate in the free market enterprises emanates from the rate at which different individuals have the mandate to vary their products and satisfy the consumer needs profitably. For example, the capitalist approach has been of salient value to enhancing production and innovation through the enhanced royalties for the specific producer (Kasper, 2006:126). The new product development process inclines companies to competitive edges ahead of their rival competitors. For example, the Coca-Cola Company derives value and leadership in the American beverage industry following originality in production of new products (Block, and Block, 2008:62). As discussed for by economists, the free markets are advantageous for equity in resource allocation. The labor factor of production reflects on the desired efficiency of production and the revenue regulation in the economy. For instance, for a company to initiate production there shall be a need for manual power in machine operation, production, and processing services to the extent of delivering products in the market. The importance that this factor renders to the market economies is ensuring regulation of products at the prevailing rate of demand. Economists hold that labor is crucial in producing according to the prevailing demand. Through researches, a supplier depicts an understanding of the amount of buyers who stand the will and ability to make a purchase for their products (Barth, Lin, and Wihlborg, 2012:46). At that point, the supplier will ensure that the amount of labor required coincides to the desired amount of output. Labor reshapes a free market enterprise economy through the demand of salaries and wages. Free market economies further advocate for mobility of labor and the controllable pursues the rate of wages and salaries. Economists argue out that the market is advantageous to a country’s economic growth after the labor force demands a wage in accordance to the prevailing rate of demand and purchase of products (Kasper, 2006:128). Ideally, a free market denotes the value for labor in accordance to the desire to serve the demand profitably. Anticipations are that the rate of wage will reflect to income circulation in an economy. This shall implicate on increased rates of spending and savings of the surplus amounts, which may further implicate on purchases on durable commodities. The employees may further derive an urge to establish their solely owned businesses and this shall implicate in an increased rate of capital investment in an economy (Lightenstein, 2005:64). The essence of mobilization of labor is the intrinsic value it adds to the economy, for example, the when labor concentrates in a particular sector of production, salaries and wages may reduce accordingly and so is the rate of demand and supply of products in the economy (Kasper, 2006:130). At such appoint, the reduced demand shall lead to increased surplus and lower returns from the amount supplied in the market. These factors shall pressurize the producer to reduce wages further and lay off workers in the desire to sustain the prevailing market tremors. Therefore, free markets contrast with the centralization approach of production factors as far as concerns relate innately to economic growth (Block, and Block, 2008:64). The libertarians approaches derive that free markets shall achieve stability with the factor of labor mobility as different labor force shall show interests to the area of specialization. After deriving the aspect of specialization and division of labor among individuals in an economy, prospects are that, a country shall grow accordingly in the presence of enough labor to exploit the available raw materials of production. A country that embraces specialization of shall derive improved quality products from the local industry that shall compete effectively in the foreign market. Different economists argue out on labor as directly related to the quality of output thus; the emphasis of division and specialization, derive an understanding of healthy competition among the factors of production (Kasper, 2006:134). This occurs when the labor depict the amount that employers should stand ready to offer to them in accordance to the levels of output. The competition arises between the employers as they target to acquire prospective labor force. The salient role of the aspect is to the fact that the companies set different salaries that they will readily offer the labor force thus increasing the amount of salary payment. Therefore, decentralization of the labor factor is important for the desired progress in the market (Lightenstein, 2005:66). Reduction of surplus The free market economists emphasize on free market approach in that it is critical for regulating the amount of supply and demand to tame chances that would result to surpluses. The law of production and consumption upholds on the importance of a level of demand and supply that coincides to the buyers needs. Economists provide that demand of a product from the consumer markets is measurable in a free market system. This is because the prevailing competition is free from bias as long as the producers present quality goods and services (Kasper, 2006:136). Therefore, measuring the amount of demand coincides with the amount of buyers showing interest towards the product. Economists derive that decentralized markets enhance supply and demand factors to an equilibrium point. When produce supplied coincides to demand, the pricing exercise takes bid in accordance different forecasts. However, libertarians argue out that at the state of equilibrium demand and supply, market variables shall coincide accordingly and reshape the price of commodities (Ahmed, Chong, and Cesar, 2004:114). Whenever the levels are at a point of equilibrium, economists establish that production utilities shall produce in accordance to the demanded amount of goods. Such an aspect is of importance in reducing the amount of product wastage. For example, a supplier who presents the amount of products as per level of demand shall earn more profits than the one incurring a surplus amount (Barth, Lin, and Wihlborg, 2012:56). The producers in free markets derive this approach thus; production of enough products interrelates to reduced expenditures on labor, and raw materials, and increased amounts of profits. The approach is critical in free market enterprises in that decentralization of resources may result to misinterpretation in the event of production. For example, temptations to producers are that some may perceive the level production factors as advantageous to exploitation for profitability. The strengths held on decentralized markets are that the producers are first observant to the levels of demand thus produce in accordance to the desired amount. The emphasis that free markets advocate for reduced surpluses and wastage is to the value for entire economic growth. Implications are that at reduced surpluses, the producer shall yield the desired profits from sells (Kasper, 2006:142). The factors of demand and supply shall derive equity in variations. At the point, the producers shall be operating above break-even point and this aspect shall guarantee diversification of investment, and innovation of new ventures. Such changes shall implicate positively to economic growth as the diversified investments will implicate on the provision of more jobs to the economy. The employed individuals shall positively implicate on increased levels of incomes per head, which shall further lead to an increase in expenditure. At that point, the businesses shall implicate an interrelation in that employees from a particular business are capable to make purchases on other products and will be the employees from those other businesses (Barth, Lin, and Wihlborg, 2012:50). Such approaches ensure a fluent flow of demand and production with minimized level of wastage, and the result is that all business endeavors realize positive economic growth. The free market advocacy for reduced production in relation to the demand is crucial for reduced risks of businesses’ failures and the resulting economic downfall. For example, wastage of production may injure an economy through low revenue yields for national growth, and increased levels of unemployment (Kasper, 2006:143). It is of necessity that decentralization of markets derives freedom of the variables to depict shapes in accordance to the controllable factors in the economy. However, arguments are that a surplus in free market economy can imply to venturing in other economic localities, as the principle advocacy is free entry and exit of the market (Lightenstein, 2005:78). Therefore, decentralization gives producers and purchasers a wide range of ventures and markets for their needs accordingly. Surplus production in an economy derives a comparative advantage in the global and regional markets. Introduction of competition and reduced monopoly Libertarians argue on the importance of free market economies as contrasted to the communists’ socialists’ approaches that tend to nationalize wealth and create high levels of poverty. According to Ludwig, the socialists curb national growth through tailored decisions that do not serve to enhance the welfare of the majority (Barth, Lin, and Wihlborg, 2012:54). The advent of capitalists approach to the economic sector served as a new beginning to individual prosperity and balance as long as an individual had the power and ability to employ the factors of production. The emphasis is that the free enterprise shall enhance investment rates through decentralization of resources (Kasper, 2006:146). This shall further implicate on increased level of investment and exploitation of resources for national growth. Such a country shall record high levels of economic growth. Decentralized markets are influential in eradication of monopolies from the economy. The hindrances that emanate from monopolies are reduced rate of supply at a higher rate of demand. This will implicate on dissatisfaction of consumer needs (Ahmed, Chong, and Cesar, 2004:120). The implications will further lead to increased prices on products and buyers may have no choice as they lack substitute commodities. However, despite the high demand and readiness to purchase products at the prevailing prices, the decision of increment in the units of production rests upon the monopoly. If the monopoly dishonors production of more units, then the economy would not improve and employment rates do not increase (Kasper, 2006:140). Free market economists argue out monopoly as ill to the economy as it may eventually lead to uncontrollable rates of inflation. In their own perspective, decentralization of resources in the market is crucial to achieving high standards of living through utilization of resources to the fullest. Competition in a free market economy coincides with the importance held in eradication of monopoly and ill practices that would concentrate economic growth at uneven levels. Economists establish that at increased competition, the producers in an economy shall engage in a continuous process of innovation that will serve to enhance the lives of individuals in the country. Through continuous innovation, each producer shall derive an understanding that the products shall derive the desired demand over those of the competitors (Ahmed, Chong, and Cesar, 2004:124). The extent of intensity in competition shall lead to a healthy growth in the economy through differentiation of products to suit new demands, which shall further implicate increased employment rates and income levels. The discussion on the strengths in a market emanating from free allocation of resources concludes on the importance of free market dealings (Barth, Lin, and Wihlborg, 2012:56). Economies should encourage local industries to uphold the free economic approach and maintain the price and production factors in accordance to the levels of demand and the production capacity. It is of vital importance to denounce price escalations in the urge to acquire more profits at reduced supply, while the demand is relatively high (Kasper, 2006:156). The critics to the move are because escalations shall injure currency value, employment rates and result to gross national and foreign incompetence of the business. Free markets derive importance in that suppliers and buyers are readily available for production and purchase at favorable prices. Bibliography Block, W., and Block, W. 2008. Labor economics from a free market perspective: employing the unemployable. Singapore: World Scientific. Lightenstein, N. 2005. American capitalism: social thought and political economy. Philadelphia: University of Pennsylvania Press. Kasper, E. 2006. Internal research & development markets with 40 tables. Heidelberg: Physica-Verl. Barth, J. R., Lin, C., and Wihlborg, C. 2012. Research handbook on international banking and governance. Cheltenham: Edward Elgar. Ahmed, M., Chong, C. K., and Cesar, H. S. J. 2004. Economic valuation and policy priorities for sustainable management of coral reefs. Malaysia: WorldFish Center. Read More