The purpose of this report
The purpose of this report is to investigate the different types of resource allocation and the allocation of resources for different kinds of economies. The report will also encapsulate the definition of economic problems, the effect of tastes and fashion on the demand and price of goods and services, definition of market failure and how the government deals with the different forms of market failure. The limitation of this report is that primary sources such as questionnaires are not used in the writing of the report. The report has been compiled majorly based on secondary sources from the internet publications and references from the lecturer.
Research Methodology
The report has been compiled following secondary research. It was not easy to use primary research due to the technicality of the subject and the time frame given. The topic of allocation of resources and the analysis of the different forms of economic system will require information from top economists. The easiest way to get their expertise is therefore through journals, the internet, and books; it is due that that fact that this report was done mainly on secondary research. The sources and readings done while writing the report are found on the references page below. The secondary research was accomplished through critical analysis, interpretation, and evaluation of the sources with the relevant information as outlined on the purpose of the report.
Findings
AC 11.1: Describe what economists mean by the 'economic problem.'
By economic problem, economists refer to the fundamental truth that there are limited resources available for the satisfaction of unlimited needs among individuals in a financial system (Amadeo). There is, therefore, the need for proper allocation of these resources among the competing alternatives. In the United States, for instance, the government collects limited revenue from the general public through taxation, there is a need for the proper allocation of these limited resources across vital economic sectors and departments within the country. The government uses the appropriate criteria to efficiently allocate the revenue and ensure the functionality of the different departments. The United Kingdom government cares much about the health care of its people, it, therefore, follows that a generous share of the country's stock allocated to the National Health Service through the department of health.
AC 11.2: Explain the role of markets, capitalist, command and mixed, in allocating scarce resources
A capitalistic economy is one that is free of the government interference. It is a free enterprise whereby only the fittest thrive and the only time the government intervenes is when a situation calls like in the protection of individuals within the system (Economicsonline.Co.Uk). A good example is how the Apple company competes with other rival companies such as Samsung for the UK market. A command market, on the other hand, is the complete opposite of a capitalistic one. The government fully controls the economy by making rule and laws that must be adhered to the later. It could decide to allocate more resources to one sector and overlook the other. A mixed economy, on the other utilizes the qualities of the two discussed markets in the allocation of resources. Most countries blend the merits of both of them and come up with the best combination that correctly helps in the distribution of resources within their economies.
AC 21.1: Discuss how taste and fashion can affect price and demand for goods and services
Clients, especially those with good income are always willing to pay an extra dollar to get the goods and services that fall within their taste and preferences (Salmon). A good or service that falls within a majority's taste and preference tend to be in high demand and hence fetch a higher price. The rich and the middle class in the UK, for instance, will prefer to go for to a private hospital for treatment and pay more instead of going to NHS. On the other hand, most people especially the youths will prefer to rock the trending fashion to feel that sense of belonging. The pressure to afford the trend will increase the demand and price of the good or service (NHS England). A good example is a demand for the latest iPhone series by Apple in the UK. Most youths would like to have the newest iPhone hence making it expensive.
AC 31.1: Explain what is meant by 'market failure' regarding the inefficient use of scarce resources
Market failure is a situation in a free market in which there is inefficiency in the allocation of goods and services (Economicsonline.Co.Uk). It is an economic situation in which the rationality of the individual players in the market does not translate to the rationality of the group. Market failure may include demerit goods, a monopoly in the market, positive and negative externalities, incomplete markets, missing markets among many others. It, therefore, follows that government intervention is inevitable as a solution to fix a market failure in an economy. The government can fix this through formulation policies that will control wages and prices, taxes and subsidies. Nonetheless, this should be done in moderation so as not to end up with government failure. The action of the UK government to make generous allocations towards NHS every year might interpret as an attempt to alleviate market failure in the health sector.
AC 41.1: Explain why governments intervene to correct externalities, to influence the allocation of merit and demerit goods and to fund 'public goods'
The government intervenes to correct externalities in the economy because it is its responsibility to protect its people. In the case of, for example, the two parties carrying out the transactions might be maximizing their utility while other people are affected, and it is only the government that can intervene (Pettinger). A good example is buying a shining Apple wristwatch, the sun's illumination on the phone on a summer might affect some individuals, and the government might intervene. The government influences the allocation of demerit and merit goods to help in the consumption of merit goods by nearly all members of the economy and reduce the consumption of demerit goods due to its negative impact on the people (Riley). The government also funds public goods to guarantee satisfaction and better services. In the UK, for instance, NHS is an example of a public product.
Conclusion
Individuals have to live with the fundamental truth that there are limited needs available to solve the unlimited wants. Economists are therefore tasked with the responsibility of giving direction on how to allocate these resources amongst competing for alternatives effectively. A given economy has got different market options to choose from to appropriately allocate the funds. This markets might include capitalist, command and mixed economy. However, the method that is used in most countries and the world and has proved useful is the use of a mixed economy in which a perfect combination of the other two forms of markets is settled. The method has proved effective, and most countries are encouraged to adopt it. It is also clear that a free market, which is found in a capitalist economy might quickly lead to market failure, as much as the parties carrying out the transactions might be deriving utility and happiness, this might have a negative impact on others. It is, therefore, the role of the government to make the appropriate intervention especially to alleviate externalities, encourage the consumption of merit goods, and reduce the use of demerit goods and funding of public good to provide quality services in the economy.
Recommendation
Although a mixed market is the most preferred in the contemporary society, the governments need not try and balance the characteristics of a free market and that of a government command economy but rather handle issues independently and know when to interfere with a free market and when not to interfere with it. The government, for instance, should control the economy using the relevant monetary and fiscal policies in case of an impending recession or depression and should reduce its command in case the economy is doing well. There is also the need for the government to protect its citizens especially about demerit goods, taxes should be increased on such items to discourage individuals from indulging on products that negatively affect them in the long run. Lastly, there is a need for the correction of externalities. Negative externalities, in particular, may adversely affect individuals but it is only the government that might help them. The recommendations are not a substitute but are meant to comprehend the existing policies to improve the allocation of goods and services in an economy.
Works Cited
Amadeo, Kimberly. "What Is A Mixed Economy?". The Balance, 2018, https://www.thebalance.com/mixed-economy-definition-pros-cons-examples-3305594. Accessed 6 June 2018.
England, NHS. "NHS England » Funding And Efficiency". England.Nhs.Uk, 2018, https://www.england.nhs.uk/five-year-forward-view/next-steps-on-the-nhs-five-year-forward-view/funding-and-efficiency/. Accessed 6 June 2018.
Pettinger, Tejvan. Economicshelp.Org, 2016, https://www.economicshelp.org/blog/glossary/demerit-goods/. Accessed 6 June 2018.
Riley, Geoff. "Explaining Merit Goods | Tutor2u Economics". Tutor2u, 2018, https://www.tutor2u.net/economics/reference/merit-goods. Accessed 6 June 2018.
Salmon, Felix. "Slate’S Use Of Your Data". Slate Magazine, 2018, http://www.slate.com/blogs/moneybox/2014/09/12/apple_watch_it_creates_negative_externalities.html. Accessed 6 June 2018.
"The Economic Problem". Economicsonline.Co.Uk, 2018, http://www.economicsonline.co.uk/Competitive_markets/The_economic_problem.html. Accessed 6 June 2018.
"Types Of Market Failure". Economicsonline.Co.Uk, 2018, http://www.economicsonline.co.uk/Market_failures/Types_of_market_failure.html. Accessed 6 June 2018.
