Question

The forces of supply and demand determine the prices which prevail for most goods and services. Take a look again at any Supply/Demand chart. What or who is represented by the segment on the demand curve which is located below the equilibrium price? In truth, this segment represents those would like to buy the particular good if the price was lower, but can’t (or choose not to) buy the good at its currently higher price. Perhaps this is trivial for goods like lattes or services like travel to the Bahamas (it’s not a tragedy that some cannot afford a latte or a trip to Bahamas, right?), but think about other goods, such as antibiotics, or services such as education. If the market sets the price, then there will always be some who can’t quite pay the price required. Does this feature of the market system strike you as immoral? Because “the market” (forces of supply and demand) does not guarantee that everyone who needs antibiotics will get them, should the market be abandoned in favor of some other system of pricing and distributing goods and services? Why or why not?

Answer 1

The price mechanism gives several advantages to the consumers as it gives freedom of choice and maximum satisfaction to the consumers etc. Under the price mechanism the consumers are uncrowned king as he is the sole authority to control all economic decisions. In a free market economy controlled by price mechanism, all the economic decisions like what to produce, how to produce and whom to produce are ultimately depends upon the consumers. The choice and decision of the consumers is represented by the demand curve of the consumers. But the upper segment of the demand curve represents the capacity and the willingness of the rich and the lower segment shows capacity and the willingness of the poor. The lower segment of the demand curve shows that the poor section of the society cannot afford a higher price. If the commodity traded in the market is a luxury goods, no matter the rich can afford for it even though the price prevailing in the market is in the upper section of the demand curve and the poor can avoid the consumption by excluding its purchase. But the scenario is different if the commodity is a necessary goods and its price prevails at the top segment of the demand curve. In such a situation the rich can afford for it and consume it. But regarding the poor it is a disaster as they are unable to pay for it. In such a situation the marker mechanism or price mechanism is a failure in respect of the maximum satisfaction and welfare of the poor consumers.

But the price mechanism cannot be declared as null, arbitrary or immoral in this context only. This system is the most advantageous system as it has many advantages compared to the other systems. The price mechanism ensures fuller utilization of resources through the process of competition among producers. This will ensure higher economic growth and higher living standard to the citizens. This system promotes innovation and technological improvements. The consumer’s requirements are most satisfied under the price mechanism. The free market economies register high growth potentials than any other systems.

The satisfaction of the poor sections of the society can be protected by the timely intervention of the government. The government can use its price control measures like price ceiling to protect the interest of the poor section of the society. But price ceiling adopted may harm the producers when the controlled price is below the equilibrium price. In such situation the government can protect the producers by subsidizing them. Thus the poor section of the society will be well off without harming the producers.

Thus it is concluding that the market system is the best system the world that we have ever seen when it is controlled by the government. The history have taught us that the other system like socialism or controlled or planned economies proved to be a failure and irrelevant in the modern world.