Question

In an economy with limited or no government intervention, resources tend to be optimally distributed. With appropriate example, explain how this happens. (Make sure to provide a good example and your response should be at least 6 sentences).

Answer 1

This is an example of free market economy or capitalist economic structure. Here the market forces such as demand and supply govern the price and quantity output where it can be mentioned that in a capitalist economy when there is a demand for particular good what happens if the price increases with which there are more profits as a result of which the consumers pay more price and this attracts the producer to enter the market and produce more so that the demand equates the supply and optimum allocation of resources is because only to that level you can earn profits for an optimal number of forms and that is the reason why the firms will not produce more. In this way demand triggers supply so that optimal output can be reached.

For example when you understand that, there is a demand for apples in the market what happens is that the farmers continue to grow apples so that optimum allocation of resources towards Apple is done when compared to other goods that optimal allocation is reached