Resource allocation in a free enterprise, Managerial Economics

Assignment Help:

Resource allocation in a free enterprise

Although there are no central committees organising the allocation of resources, there is supposed to be no chaos but order. The major price and allocation decisions are made in the markets. The market being the process by which the buyers and sellers of a good interact to determine its price and quantity.

If more is wanted of any commodity say wheat - a flood of new orders will be placed for it.  As the buyers scramble around to buy more wheat, the sellers will raise the price of wheat to ration out a limited supply.  And the higher price will cause more wheat to be produced.  The reverse will also be true.

What is true of the market for commodities is also true for the markets for factors of production such as labour, land and capital inputs.

People, by being willing to spend money, signal to producers what it is they wish to be produced.  Thus what things will be produced will is determined by the shilling votes of consumers, not every five years at the polls, but every day in their decisions to purchase this item and not that.

The "How?" questions is answered because one producer has to compete with others in the market; if that producer can not produce as cheaply as possible then customers will be lost to competitors. Prices are the signals for the appropriate technology.

The "for whom?" question is answered by the fact that anyone who has the money and is willing to spend it can receive the goods produced.  Who has the money is determined by supply and demand in the markets for factors of production (i.e. land, labour, and capital).  These markets determine the wage rates, land rents, interests rates and profits that go to make up people's incomes.  The distribution of income among the population is thus determined by amounts of factors (person-hours, Acres etc) owned and the prices of the factors (wages-rates, land-rents etc).


Related Discussions:- Resource allocation in a free enterprise

Gdp growth, Discuss how the nation's present economic situation may affect ...

Discuss how the nation's present economic situation may affect your business in the next year (your market is the entire US economy).  Contain the following in your analysis. a)

Explanation of business cycle, Causes There are a number of explanatio...

Causes There are a number of explanations of the business cycle but changes in the level of investment seem to be the most likely.  In the simplest Keynesian model an increase

Profit maximization, arguments in favour of traditional theory of profit ma...

arguments in favour of traditional theory of profit maximization

Construction of an explanatory model, Q. Construction of an explanatory mod...

Q. Construction of an explanatory model? Construction of a sample:   To apply multiple regression a large sample is generally essential (ideally between 2,000 to 15,000 indivi

Disadvantages of barter trade, Disadvantages of Barter Trade It is...

Disadvantages of Barter Trade It is impossible to barter unless A has what B wants, and A wants what B has. This is called double coincidence of wants and is difficult t

What is marginal cost curve, Q. What is Marginal cost curve? MC curve i...

Q. What is Marginal cost curve? MC curve is also 'U' shaped as in Figure below. Marginal cost curve falls initially but then reaches a minimum point and lastly rises. Shape of

To what extent has the imf achieved its objectives?, To what extent has the...

To what extent has the IMF achieved its objectives? The objective of achieving full convertibility of currencies has not been achieved.  In the first place countries impose re

Help, BU 5210 Final ...

BU 5210 Final Summer 2013 Economic Analysis

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd