Market Mechanism

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Scientific management of resources in the line of production, distribution, exchange and consumption is called simply allocation of resources. The allocation of resources discussed principle of right sharing of resources among competing sectors. Whatever, the type of economy be it capitalist, socialist of mixed decision has to be made regarding allocation of resources. In a capitalist economy decision about the allocation of resources are made through the free market price mechanism. A capitalist of free market economy uses impersonal forces of demand and supply to decide what quantities and thereby determining the allocation of resources. The producers in a free market economy motivated as they are by profit consideration take decisions regarding what goods are to be produce and in what quantity by taking into account the relative prices of various goods.

What to produce?
The first concered is rated with What to produce? How much to produce? Because resources are scarce production of all goods and services needed by a society are beyond its capacity. It is simply not possible for any economy no how develop it might be. So, it has to select a set among various alternatives production must meet the maximum social need. The first priority goes to the basic needs. However, production is guided by profit and profit knows social justice. An economy should follow social efficiency while recollectiong resources. The social norms and values should guide to maximize social satisfaction so allocation is best which satisfies the most. The problem of what to produce and how much to produce depends on the necessity of the citizens of the country.

How much to produce?
The second question is concerned with the method of production. In some cases, labor may play a major role. It is called labor intensive technology. In others, capital may play a major role. It is called capital intensive. Labor intensive methods creats more jobs favouring more employment. It helps in...
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