TRUE OR FALSE... In terms of economics, there are 4 options to correct the under allocation of resources.?

Question

PLEASE PROVIDE AN EXPLANATION OF YOUR ANSWER

Answer 1

FALSE.

If resources are being "under allocated" then the market is not working. There is only one realistic solution: allow the market to work. When people can vote with their wallets, goods and services are allocated to the maximum extent possible.

For example, let's look at what governments do to "correct" the market. Let's say the government decides that beans are too expensive and passes a law forbidding sellers to charge more than 25 cents per can.

What happens to producers of beans? Well, they can't make a profit if they sell at 25 cents per can, so they either switch to producing canned tuna or they close up shop and get jobs as travel agents.

Did the government "correct" the problem of "under allocation"? No. It created a shortage. Now fewer cans of beans are being sold than before. You want to buy some beans? Good luck finding some.

Markets might not always allocate resources in ways that everyone considers fair, but they generally are the most efficient. If resources are not being efficiently allocated, it's probably because some politician decided to try to "correct" the market.

So, the answer is FALSE -- there are not 4 options to "correct" the under allocation of resources. There is only one: don't try to "correct" the market -- just get out of its way and let it do its job.

Answer 2

Here's what I can think of:

1. Taxation - e.g. an increase income tax, which takes resources away from the income earner. Note that a reduction in income tax has the opposite effect.

2. Welfare or Transfer Payments - e.g. unemployment grant or old age pension - transfer resources to needy groups.

3. Subsidies - payment by government to producers of part of the cost of production

4. Price ceilings - Fixes the price so that continually rising prices (inflation) would not reduce the consumers' income.

This division may not be universal or conclusive, but I suggest you refer to your text to see what classification it uses.