Reasons Why People Believe That the Market System Is the Best Method of Allocating Resources in an Economy

Due to the market system and the price mechanism that is the forces of supply and demand there may be several factors to consider when determining why individuals prefer this particular market system as appose to other methods of allocating and distributing resources in an economy.

It is to ones belief that the economy under review may be classed as a market economy if there is price determination through the market forces as well as the possibility of government intervention. For this there may be several reasons as to why people believe that the market system may be the better mechanism for allocating recourses in an economy.

Fundamentally, the market system thrives on price determination through the forces of supply and demand, which is resources are distributed through the price mechanism which in turn is determined by the forces of demand and supply for these resources. More over under this type of economic system, government interference in the economy is kept to an absolute minimum as emphasis is placed on the freedom of the individual. Thus in such a market it would be safe to say that a positive investment climate is more or less dependent

upon the individual. Furthermore, resources are privately owned, and production decisions are made by private firms and individuals acting in their own interests in response to the price mechanism. Moreover that is the free movement of the market price of goods and services brought about by changes in their demand and supply. Hence in this system the price mechanism plays a very important role and as a result some individuals believe that freedom of choice is better able to promote a positive investment climate. Thus consumers prefer the price mechanism for several reasons.

Firstly it indicates consumer’s wants where a product is relatively scarce, consumer’s competition for the limited supply will cause its price to rise and the resulting increase in profits will encourage existing producers to increase their supply and attract new firms into the industry. This proves beneficial to the consumers as the more competition increases variety which increases Choice for the consumer will also increase as well. Moreover it increases the quality of goods on the market. This increases one’s standard of living. It may also lower the cost of living to an extent as increased productivity by firms would mean economy of scale which results in lower cost goods for consumers as production costs fall through