why do some people believe that the market system is the best mechanism for allocating scarce resources?

Question

need to do an essay , other info required like scarcity, allocation of resources, what is a market system, advantages, planned economy, mixed, how does a market system better achieve the goals than a planned.

Answer 1

Simply put, if the resources are scarce, then only the sectors of the market that truly need the resources, can afford to pay the high price that the scarce resources will command. Areas of the market that do not need those resources, or don't need them badly, will do without because the high price of that commodity cannot be justified.

Answer 2

In laise-fair capitolism (which is a prejorative for market system these days) theorheticaly the market will self-adjust to meet the needs of the masses. It is demand-side economics--which means that the market adjusts to meet the demands (needs) of the people.

In our controlled capitolistic economy, there is massive intervention which presumably is in place to protect the little guy. Yet, in what has been coined "Reaganomics", the big idea was to build up a supply of something, then sell the idea that the people need it. It's creating a need in people instead of meeting a real need.

In socialized economies, there is no privitization of resources. Ideally, the resources are controlled by a (hopefully) concerned government (the "state"), and the resources are made available to the citizens. There really would be no "scarcity" if everything was fairly distributed.

We can't find examples of either of these extremes that are working on a large scale. There is too much corruption, and the big guys are hoarding the resources, which makes them scarce.

There are corporations that have been able to break through nearly every border of every country and set up shop. These are called Multi-national corporations, or MNCs. They are so powerful that they can change the laws of another nation to make it possible to hoard resources for their own profits. They are backed by the United States, and in many cases, the US military. We seem to have a military base in every nation that has anything exploitable. (Imagine if some other country were to try to set up a military base in our country. Hah!)

In most countries you have to pay for everything, including the water-the most important natural resourse of all. The people who can't afford the water that flows in their own country are forced to live in sewage and garbage.

If the MNCs could manage it, they would make money off the air we breathe.

I guess I didn't exactly answer your question, because I don't believe that the market system is the best mechanism for allocating scarce resurces, I believe a state controlled system that gives a damn about its own citizens, that will not sell out to the MNCs, is the best system.

Answer 3

Because it is. Your flawed thinking is that we will just "use up" stuff. However, when anything is scarce, it's price goes up to the point where less people will/can buy it, thereby diminishing it's use. When it's abundant, the opposite is true, so people's buyng needs & wants, balanced with distribution's abilities will balance these problems out. When the government controls these things, it inserts an artificial layer over the logic of the market; decisions are made for political reasons, people in charge that have no expert knowledge make the decisions, politicians make decisions to favor large campaign contributors, etc. These things cause FAR more problems with scarce resources than does absolute free market systems. Neither is perfect, but the state control solution obviously has more problems, otherwise this problem would be fixed, wouldn't it?

Answer 4

In general I'm loathe to provide answers to what are obviously essay questions that could be answered by, oh, say, actually doing your assigned readings and a bit of independent research on your own!!

... but for this one I'll just note that many economists believe that markets are a very effective (maybe the most effective) mechanism for allocating scarce resources because of the first and second fundamental theorems of wefare economics.

Answer 5

It seems to work better than communist systems. Look at Cuba and North Korea for an example of these. Look at Ireland and Viet Nam for examples of free market economies. Government taxation and regulations almost always end up making a hash of a country's economy. See the stagnant economy of France for an example.