The Price Mechanism And Resource Allocation - 1164 Words

Economics is a system that attempts to acquire a balance between the available resources and demands. Currently, three types of economies are recognised in the world; command market, mix market and the free market. Each of these types has different systems. While in the command economy, the central authorities make all the economic decisions, in the free economy, the households and firms are responsible for all economic policies (Sloman and Garratt. 2010, P.17). On the other hand, the mixed economy is a combination of both the command and free market, which means the economic decision are collectively taken by both the government and the market. Essentially, the free market theory states that price acts as a significant signal for both†¦show more content†¦In the diagram, the producers have tried to increase the price to P1. However, at this price the quantity demanded will decrease to Q1 and the quantity supplied will increase to Q2. At this stage, supply will be excess of Q1-Q2. Hence, at the price P1, there will be more supply than demand. In order to eliminate this surplus, the quantity supplied will decrease as the production will be less profitable and this will raise the quantity demanded. Therefore, the process will revert to the equilibrium price Pe (Sloman, 2016, p.18). On the other hand, if customers demand more products, the demand will exceed supply. Consequently, the seller will increase the price, which will result in a shortage. As the diagram illustrates, the suppliers have tried to reduce the price to P2. At this price, the quantity demanded will increase to Q2 and the quantity supplied will fall to Q1. At this stage, demand will be excess of Q2-Q1. Hence, at the price P2, there will be more demand than supply. In order to eliminate this shortage, suppliers will increase their prices and supply more products as the production will be more profitable. Therefore, the quantity demanded will decline and the quantity supplied will rise. The process will proceed until the quantity demanded once again equals the quantity supplied, which means back at Pe (Sloman. 2016, p.18). Furthermore, the price mechanism also has several impacts, such as a change in demand and supply, in the free and competitiveShow MoreRelatedThe Sources of Market Failure Essay 909 Words   |  4 Pagessystem that prevents the most efficient allocation of economic resources. An optimum allocation of resources is said to exist when it is impossible to make on e member of society better off without making at least one member of society worse off by reallocation the resources to produce a different range of goods and services. Market failure is a situation where the free market fails to achieve an optimum allocation of resources, and this may come about because of (a) marketRead MoreDouble Auction And Negotiation For Dynamic Resource Allocation1398 Words   |  6 PagesDouble Auction and Negotiation for Dynamic Resource Allocation with Elastic Demands Yue Yang, Shiqiang Wangy, Qingyang Songx, Lei Guo and Abbas Jamalipourz School of Information Science and Engineering, Northeastern University, Shenyang 110819, P. R. China yDepartment of Electrical and Electronic Engineering, Imperial College London, SW7 2AZ, United Kingdom zSchool of Electrical and Information Engineering, University of Sydney, NSW, 2006, Australia Email: yangyueneu@163.com, shiqiang.wang11@imperialRead MoreThe Free Market System, Demand And Supply And Allocation Of Resources1110 Words   |  5 PagesIn this easy there will be an introduce of these topics: the free market system, demand and supply and allocation of resources, and there will be some definition of these topic, also there will be references to support the writing. The final thing is concluding Free market system is when prices and wages are determined by competition between businesses, without government regulation and not leading the market to have monopolies sector. (Eller, E. P. (n.d.)). In a free market system thereRead MoreWhy Is Sec Important For The Smooth Functioning Of Both Securities And Stock Markets1607 Words   |  7 Pagesregulations will increase the short run price of stock. The investors will respond to a change of regulation by holding their money lest they may lose. Additionally, some of the investors will recall their money for fear that some companies will close down before they are paid back. As a result, shortage of stock will occur in the market, resulting in high short term prices. Besides, public corporations tend to compete for the little stock in the market. Consequently, prices of the stock will be increasedRead MoreHow Freely Operating Market System1109 Words   |  5 Pageswriting this report is to describe how freely operating market system or pure market determining the price based on demand and supply. This report also explains how the market mechanism can help to ensure that scarce resources are allocated to where they are most w anted. In order to discuss answer quite clearly, diagrams will be mentioned in this report. Describe how prices are determined under a freely operating market system A market can be clearly explained as a placeRead MoreExplain how resources are allocated in reference to the different economic systems?1686 Words   |  7 Pagesmeans that the resources are limited but wants are infinite. This distribution has three dimensions: * What is to be produced * How is it to be produced * For whom is it to be produced. There are 2 economic systems which are commonly used world-wide. There are: the free market system in which the role for the government is limited and the planned system where the government takes viturally total control. In both of these systmes there are different methods of resource allocation used. There areRead MoreExplaination of the Price Mechanism Essay561 Words   |  3 PagesIn a perfect economy the price mechanism can give a perfect allocation of resources: what is demanded is produced, changes in demand lead to changes in supply, and the workers move from a dying market to a growing one. Unfortunately, the economy is not perfect. To stop getting to this gorgeous market solution. It only needs one of these elements to be operative and it will be failed the perfect market solution above. In a world where most of products are scarce and people’s wants are unboundedRead MoreConcept Of Market Failure And Its Aspects On Allocation, Production, And Distribution1580 Words   |  7 Pagesof this essay is to introduce the concept of market failure and what might happen if government intervention is prosecuted. Also this essay will acknowledge the different aspects of one of the major topics in economics the scarce of resources and it’s aspects: allocation, production, and distribution. Furthermore in this writing academic literature and articles would be used in order to defend the outcome of the discussion about government intervention in the market. Economics are a complex matterRead More Free Trade V.S. Command Economy Essay797 Words   |  4 Pagesfact they are very similar. They both wanted to change the way their societies ran things.  · Resource allocation  · Resource ownership  · Type of incentives  · Level of government decision making The 2 major economic systems are market and Marxist: The first is Capitalism: an economic system characterised by private ownership of the factors of production, market allocation of resources, use of economic incentives, decentralised decision making. E.g.(the US adopts an economic systemRead MoreBilling Theory1275 Words   |  6 Pagesat the mechanisms of bandwidth allocation that sustain the customers’ bandwidth requirements. The internet providers must balance the quality of service with the cost trade-off for every subscriber. Our proposal is based on the notions of fairness among customers while our mechanisms are strategy proof both in the individual level and the group level. Additionally, our mechanisms either produces a feasible allocation or achieves ideal allocation for all customer with a positive allocation. More importantly