Question

In: Economics

"Scarcity implies that some way of rationing goods must be found." Explain how the market price...

"Scarcity implies that some way of rationing goods must be found." Explain how the market price system promotes greater economic activity than alternative systems of deciding who gets the benefits of production. (eg., first come-first served, equal shares or random lottery.) (6 points)

Solutions

Expert Solution

In the market price system, the laws of demand and supply work. Demand and supply interact with each other to determine the price level in the economy. Now, at this price level, only those individuals will be able to consume the product who are willing and able to pay for the product. In this process, the consumers also earn consumer surplus. Producers earn their producer surplus.

Now, let us suppose that the market system was not there and instead systems such as first come first serve would be prevalent. In such a system, we might exclude many people actually willing and able to consume the product. Moreover, it would have been difficult to look for price signals and set the appropriate level of price. This way either the consumers might lose consumer surplus or the producers might lose producer surplus. Moreover, it would have been difficult to estimate the appropriate amount of quantity to be supplied.

Thus, pricing mechanism promotes economic activity by ensuring that an efficient level of quantity is produced.


Related Solutions

Using the example of the gasoline market, explain how price acts as a rationing tool. Are...
Using the example of the gasoline market, explain how price acts as a rationing tool. Are there other ways to ration gasoline among consumers? Explain. plagiarism free
describe the concept of scarcity in sports and how rationing devices are used in controlling the...
describe the concept of scarcity in sports and how rationing devices are used in controlling the distribution of scarce resources.goods,or services in sports
how does scarcity generally affect supply and demand ? give some examples of goods and services...
how does scarcity generally affect supply and demand ? give some examples of goods and services that would considerd scarce. what is their impact on price?
2. Typically, goods that are in high demand have a high market price. However, some goods...
2. Typically, goods that are in high demand have a high market price. However, some goods that are in high demand during their peak season have lower prices as compared to their out-of-season price. Use your knowledge of supply & demand to explain the lower equilibrium price of cherries sold in the summer (their peak season), as compared to their price during the rest of the year (say, in the winter). Show it graphically and briefly explain. (3 pts.) Hint:...
In some markets the government has interfered with the rationing function of the market by establishing...
In some markets the government has interfered with the rationing function of the market by establishing price ceiling and price floors. Has the establishment of price ceiling and price floors achieved the desired outcomes. Give examples.
How do changes in market prices relate to scarcity? Why do economists typically not favor price...
How do changes in market prices relate to scarcity? Why do economists typically not favor price controls? What is tax incidence? How does it relate to price elasticity of supply/demand? How might understanding tax incidence be important when evaluating public policy proposals?
explain how scarcity is determined in our economy
explain how scarcity is determined in our economy
EBay is a secondary market for goods in the same way that theNYSE is a...
EBay is a secondary market for goods in the same way that the NYSE is a secondary market for stocks. Explain how EBay users helps keep prices efficient for any generic good (if you need a tangible example, how about a Make America Great Again hat?). This mechanism should be analogous to how traders keep prices efficient for stocks. Be detailed in your explanation to walk through the exact mechanism. 
What is capital rationing? How capital budgeting projects are chosen when capital rationing exist? Explain.
What is capital rationing? How capital budgeting projects are chosen when capital rationing exist? Explain.
10. The type of non-price rationing that most closely approaches the market outcome is: A) favored...
10. The type of non-price rationing that most closely approaches the market outcome is: A) favored customer rationing. B) first-come, first-served basis or queuing. C) coupon rationing with coupons that can be resold. D) coupon rationing with coupons that cannot be resold. Consider the market for generic soda, a product that only has “soda” on its label. We know that demand for generic soda falls when income increases, demand rises when the price of other soda increases, and that demand...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT