Pros And Cons Of Resource Repariation

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Resource allocation is the process by which available resources are distributed between competing uses. In a competitive and advanced technological era, resources should have been allocated in the most effective and efficient manner. However, there exist firms that encourage inefficiencies in order to earn more income. This process of inefficient allocation of resources leads to imperfections in the market. Market failures have negative effects on the economy because an optimal allocation of resources is not attained. Market failure arises for the following reasons: An externality arises if a benefit from the production of a good is not included in the demand price or the cost is not added in the supply price. This means that the demand price…show more content…
In order to eradicate imperfections in the market, it is vital for government intervention. Government intervene with its policies, will encourage efficiency in the market. Efficiency in allocation of resources is achieved when value received is equal to value foregone. However for markets to achieve efficiency, few conditions must be apply. Firstly, the market must be competitive, where competition among buyers and sellers creates equality between demand price and supply price. Secondly, the market must not have any benefits or costs external to the market. The demand price must reflect all value generated from a good and the supply prices must reflect all opportunity cost of foregone production. Thirdly the market buyers and sellers must have complete (ideally, perfect) information about prices and alternatives. By abiding to the following conditions, the market will diminish imperfections in the market and benefit from the following efficiencies: Allocative…show more content…
The existence of governments is largely attributable to the market failure of public goods. With all its funding received from taxes and with the power of imposing legislation and regulation, government is able to control the imperfection around the market. The key tools for addressing the market failures of public goods, market control, externalities, and imperfect information are: Direct Provision: A very common method used by governments to solve the market failure of public goods is direct provision. That is, governments itself look into the production of public goods and/or their distribution to the public. State funding can be used to provide public goods directly to the population For example: The national government hires military personnel, purchases armaments and equipment, maintains military bases, and generally oversees the operations of military actions. Governments tend to directly provide goods failing from market control, which include water distribution, street lighting and trash collection.

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