Question

3. For each of the following goods, briefly describe the allocation mechanism that is most commonly used in the United States:

            a. Pepsi cola

            b. gasoline

            c. medical care

            d. marijuana

            e. guaranteed student loans

            f. body organs

            g. babies

Answer 1

Some of the listed goods like Pepsi cola, Gasoline, Medicare and guaranteed students loans are allocating through price mechanism in U S. Since these goods are private goods the goods can be best allocated by price system. The private goods are those goods the consumption of which is available to those who pay the price. Those who are not paying for it can be excluded from consumption. For example if you pay the price of Pepsi cola, you can drink it and the other person who is not paying is excluded from its consumption. There is rivalry in consumption of private goods. For example if a person buy and drink a Pepsi cola, the same cannot be given to the other. Thus rivalry and exclusion in consumption are the basic characteristics of a private good and the price mechanism is the best suited method for distributing these goods.

Price mechanism is a system where the activities of millions of consumers and producers are co-ordinate. Price is a message which gives the willingness of consumer to offer price and the willingness of producers who offer to supply goods. When the willingness of consumers and producers are equated and the price is fixed and the commodity then exchanged. At the parity of willingness between the consumer and producer both get maximum satisfaction.

The producers are keen to produce those goods whose price goes up. But the costumer is keen to buy those goods whose price goes down. Thus the decision of consumers and producers are reconcile through the price mechanism where the commodity is exchanged.

U S economy is a market economy and so goods are allocated through price mechanism.

a. Pepsis cola is a private goods, thus price system is used for its allocation. Those who pay the market price can get it for consumption. The sellers distribute the goods only that pay the price.

b. Gasoline is also private goods since then, this one is also distribute through price system or market mechanism.

c. The health care is a private good and hence it is avail to those who purchase it. The price system is used for its allocation.

d. The use of Marijuana is illegal as per Federal law. But some stated legalized it and allow its purchase and sale to a certain limits. Thus it is allocated through price system in some states.

e. The students loans are allocated to those who willing to purchase and pay for it. Hence the price mechanism is used for its allocation.

f. Body organ exchange is prohibited in U S. No market mechanism for allocating it. Under the federal National Organ Transplant Act of 1984(NOTA) buying and selling of human organ is prohibited in U S. But one can donate his organ as per legal procedures.

g. Babies are not allocated in U S and no price mechanism is used for its sale. Buying and selling of babies prohibited in U S. But one can adopt a child legally. No price mechanism in this regard.