The allocation of resources

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Assignment: The allocation of resources


                                           STUDENT NAME: Shan Ji


A free market economy is an idealized form of a market economy in which buyers and sellers are permitted to carry out transactions based on mutual agreement on price without government intervention in the form of taxes, subsidies, regulation, or government ownership of goods or services. A free market economy is an economy in which the allocation for resources is determined only by their supply and the demand for them. This is mainly a theoretical concept as every country, even capitalist ones, places some restrictions on the ownership and exchange of commodities. If a commodity is in short supply relative to the number of people who want to buy it, its price will rise, producers and sellers will make higher profits and production will tend to rise to meet the excess demand. If the available supply of a commodity is in a glut situation, the price will tend to fall, thereby attracting additional buyers and discouraging producers and sellers from entering the market. In a free market, buyers and sellers come together voluntarily to decide on what products to produce and sell and buy, and how resources such as labour and capital should be used. Resources are simply the bargaining clout of each stakeholder, relative to each other. They define the amount of influence a stakeholder has on negotiations were they to be fully motivated. Profit means the excess of revenues over outlays in a given period of time, the advantageous quality of being beneficial.

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The functions of profit are encouraging the company to develop, encouraging the economic growth.

In reality there are no totally free or ideal markets in operation. Lack of perfect knowledge, monopolistic practices, cartels, taxes and government regulation bias the equilibrium points of most large markets in existence today. Participants engage in information bias practices such as insider trading and price fixing. Some believe that the notion of a free market is inherently unachievable because they believe that governments are fundamentally involved in markets through the creation and enforcement of property rights. Others argue that the concept of property comes ...

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