What are 2 arguable ways that markets allocate society's scarce resources between different uses and persons.

Question

I believe consumer soveriegnty play a big role in this, but I cant make the connection. I understand the money spent by consumers votes on the products being made. But I dont know how to illustrate it. Thanks

Answer 1

There are 4 ways, money, time, need and power. When we buy things we pay in money. When we stand in line or sit in traffic jam we are paying with time. Government welfare programs, private charities and insurance companies are allocating on need. The four methods are somewhat interchangeable. Expensive stores have better faster service so you exchange money for time. Rich people want toll roads or congestion pricing so they can make the exchange for traffic jams. Buying insurance is exchanging money for the assurance of money payments when you are in need so you are not dependent on the good will of others. Power is exchanged for money by influence peddling in government, and corporate boards.
Allocations based on money is the most efficient because individuals in maximizing there own income look for ways to satisfy the the wants of others. If there are few pencils but lots of pens, pencils will cost more than pens, so you can make more money making pencils than pens, so someone will make pencils and correct the shortage. If price controls are used to keep the price of pencils down because people need them, people will pay in time by standing in line to buy them, but this will not increase the supply of pencils. If the government decides how many pens and pencils should be made the shortage may last a long time before it is noticed and corrected. If the current maker of pencils have the power to prevent new pencil makers in the market the shortage may last forever. If however a shortage exist that it is not possible to correct by more production, i.e. water in a desert or on a life boat after a plane crash money is no longer an efficient allocator.

Answer 2

Demand and supply determine the allocation of resources in a market economy.
Whereas, corporate and governmental social responsibility can follow a path away from what I have mentioned as part of the market mechanism. This may be done by subsidising certain sectors of the economy.