Question

Discuss the difference between market allocation of resources and government allocation of resources. Which one provides for a more efficient allocation?

Answer 1

In the market allocation of resource, the resources are allocated by the price system of the market. The price of a resource depends on the relative supply and demand of the resource. The price system helps in determining which resources are demanded and to which extent and which resources are supplied and to which extent. The price mechanism decides which goods and services get produced and who consume them. Consumers demand the goods which provide utility to them and the producers are willing to produce those goods which the buyers are willing to buy.

In the case of government allocation of resources, the government decides which goods and services are produced and to what extent. Also, under government allocation of resources, the government decides who consumes the goods as the price is also fixed by the government.

The market allocates resources more efficiently than the government. The market system minimizes waste and helps in producing goods and services at the minimum average cost. On the other hand, government allocation of resources leads to inefficiencies, corruption, and wastage.