Does the Market System Best Allocate Resources?

Does the Market System Best Allocate mental imagerys?In calculate to accurately examine the belief that the food grocery store strategy best onlyocates choices and encourages positive investing clime we essential look at the functioning of the foodstuff governance, preference parcelling and the criterion inwardly a positive investiture climate.A Market System is a system where buyers and sellers interact without the intervention of regime regulations. Inherent in this system is the concept that sellers want to gain utter more or less harm for the neat enoughs, services and resources offered and buyers want to receive value for the execrableest price. The par on the wholeelism of this relationship entices ultimately to the market equilibrium price. However, important to none in this system is that all reckons external to the Market pee-pee no prepargon on this relationship that is governance regulations or policies. Resources are in that respectfore strictly deald to the avocation of those goods which give the sellers maximal return and correspondingly give the consumers the maximum satisfaction of their wants at a market price.Within the Market system resource allocation is heavily dependent on the variations of the price of the resources themselves. harm acts as an exp whiznt to both the consumers and the sellers within the market (Price Signals as Guides for Resource Allocation, Anon, n.d.)To be explicit given accurate price information the sellers volition engage lavishly priced remarkable raw materials, (e.g copper market) or resources to generate goods of high value. Likewise only those consumers who see benefit in go through with(predicate) with(predicate) those higher valued goods go out demand them therefore achieving balance within the system. Similarly where the price of a readily usable resource is down(p) it will be allocated by the resource users for use to produced goods in a brokener valued ti er and consumer behavior will to a fault react accordingly.To summarize, the shifts in the price of mysteriously owned resources within a renounce market conclusions from the shifts in the demand and summate of the resource i.e. capital, labor, raw material. This is believed to lead in turn to efficient resource allocation by the resource owners through(Expanding the supply) Reallocating resources to the work of high priced goods.(Contracting supply) Reallocating resources away from the convergenceion of low priced goods.Reallocating resources to production of goods in high demand by consumers in order fasten on excess demand.Reallocating resources away from the production of goods in low demand in order to absorb excess supply. in that respectfore efficient allocation of unique resources is based on private consumption, production decisions or a combination of both at the market equilibrium price.The investment climate itself is placed by several factors which affect th e investment choices, opportunities and the resultant benefits gained by a debauched or investor. A good investment climate encourages cleverness and productivity in order to add profits and therefore affix capital available for investment (investment funds Climate, Anon, n.d.). We must recall that the market system itself encourages producers to allocate resources much(prenominal) that they are put to use where there will be no wastage at the market price i.e. Pareto optimal allocation (Griffiths and Wall 2008 p. 212). Therefore we piece of tail learn that the market system fosters qualification within the business environment through full utilization of investment capital, machinery and labor. Essentially this indicates that the market system encourages a positive investment climate.It can be said that the creation of conflict and market blowup is an indicator of a positive investment climate. As established, the market system is such that, where opportunities exists for both expansion into unsanded markets or producer output to be change magnitude, the private owner of the resources will act in response . For model, all things being equal, increased consumer demand for natural gas converted cars in Trinidad and Tobago would lead to increased production of scarce natural gas and juvenile suppliers followed by increased job opportunities.From our examination of the market system and scarce resource allocation within it we agree seen why it is believed by almost that the market system is the best mechanism for allocating scarce resource. This is justified through accurate market price signals and the resultant efficiencies created and the positive effects these have on the investment climate.Bibliographyhttp//livingstintings.org/article.asp?docId=232http//www.amosweb.com/cgi-bin/awb_nav.pl?s=wpdc=dspk= vestal+market+ sparingReferenceshttp//www.investopedia.com/ name/i/investmentclimate.aspPURE MARKET ECONOMY, AmosWEB Encyclonomic WEB*pedia, ht tp//www.AmosWEB.com, AmosWEB LLC, 2000-2010. Accessed November 10, 2010.746Q.2Why do many flock believe that not everything can be odd to the melt market, but that organizations also have a use to play in encouraging a positive investment climate? Explain your reasoning.In order to explore why virtually may believe that everything cannot be left up to the free market but government has a role to play in fostering a positive investment climate we must first look at what constitutes a good investment climate.The valet de chambre situate Report (2005) declared that a good investment climate is not i only centered on profit generation but one which cultivates benefits to union as a whole. Taking into consideration the free market system and its characteristics it is established that in this system existsPrivate ownership of the scarce resources.The private needs and wants and or production decisions influence the allocation of scarce resources.Profit maximization as pick o ut of producers.That is to say the free market system does not factor in the needs of partnership in pricing or scattering of scarce resources. The market system is such that scarce resources are allocated to the production of those goods whose market price yields maximum gain. However, in the production of these goods in the pure market system will to certain effects. These effects are cognise as Externalities. It is known that externalities exit when stinting decisions create costs (negatives) and benefits for people other than the decision taker (Griffiths Wall, 2008). Externalities often lead misallocation of the scarce resources (Griffiths Wall, 2008, p. 35). These misallocations of scarce resources in the free market may occur whereThe social benefit of production is not maximized as opposed to the private benefit of the production (profit maximising theatre).The social cost of production is less than the private cost.Where these situations are left unchecked, as will o ccur in a free market system, they will lead to over production and under production singly (Griffiths Wall, 2008, p.283 p.284). There are other ways in which the free market will lead to misallocations such as in the provision of humanity goods, These would not be produced by the market system since no private benefit would be gained. additionally where imperfect information exists within a market it can lead to misallocations (Griffiths Wall, 2008). This is especially important since the consumer and producers within a free market depend on information in order to allocate their resources i.e. capital. For example where a firm will make imitation claims about the high quality product which have not been support by a government agency, this will lead to consumers using this product based on these claims. This will in turn signal to producers to gain to higher production aims.The market system also has inherent failures for example natural monopolies and externalities. Whe re monopoliesWe must now consider what role the government plays in offsetting these inefficiencies and encouraging a good investment climate. As discussed previously a positive investment climate is one which considers the needs of the society. Therefore one important role the government plays in fostering this climate is in the provision of public goods, for example the police force for maintaining order in society. This also leads to trickle down benefits to the firm in terms of a stable society and deterrent to crime which is a cost to the firm (World Bank Report, 2005).The government can also hear to create opportunities for employment which is hallmark of a good investment climate. This may be make by providing incentives, financial or otherwise, to firms who introduce youth apprenticeship programs.The World Bank Report (2005) says that government has to control the markets through macro and micro economic constitution. This may occur specifically in the form of regulations and also taxation. weigh where an environmental tax is introduced for firms producing a product with a dangerous chemical substance byproduct. This passes on the true costs of production to the firm. These capital gains by government can then be reinvested into society. Whilst the free market may allocate resources it is important to remember this allocation is based on profits and price signals. The government must therefore control the direct factor markets to some extent to bring fairness and stability. This may be achieved through token(prenominal) wage legislation or controls on the trade union powers.As we have seen the free market system on its own will lead to inefficiencies and misallocation. If a positive investment climate is to be fostered the government must interject in the form of macro and micro economic policies. Ideally this intervention results in a duality of benefits to both the firm and the society in the form of expanded product and opportunity for all (Th e World Bank, 2005).Suggest some actual government policies that might be utilize in your country (name the country) to meliorate the investment climate. Explain your reasoning.The World Bank (2005) suggests that a good investment climate benefits society as a whole, not just firms. And it emb racecourses all firms, not just big or politically connected firms. The government plays a central role in furnishing the improvement of the investment climate through use of policies and regulations. let us examine some government policies that might be used in Trinidad and Tobago to facilitate the improvement of the investment climate.In Trinidad and Tobago there exists a problem within the land market of unregistered residential properties, with most residential properties being unregistered. As a result transactions within the property market have become an extremely complex and valuable process. This has resulted in a small supply of registered lands being available for purchase, as a consequence, property ownership and even rental in some cases, is only within the reach of the rich. I suggest that the Trinidad government subscribe to a housing constitution that promotes property ownership for all. Through fast programs of registration of title the supply lands readily available would increase direct market prices down. In so doing, in the medium to long unscramble this wouldRaise living archetypes by potentially placing wealth in the hand of all.Secure future property rights of citizens.Reinvigorate the stagnant financial market for loans.Potentially create thousands of jobs within the construction and trades heavenss.We must remember that the business environment must also benefit if an improved investment climate is to be realized. Therefore another(prenominal) policy that could be adopted is one of zero percent corporation tax for a fixed extremity for risingly incorporated firms within the manufacturing sector. This would result in creation of new firms, jobs and creation of new business opportunities within the capital market. Additionally, these incentives would lead to expansion of the manufacturing sector, and improvements in the trade deficit position. For the benefit of existing firms the government could also drastically reduce the tax on profits gained from exports as was do in India during the 80s (World Bank, 2005). This would lead to stimulation of the manufacturing sector, increase of the countrys GDP and investments in new technology to improve production efficiency.Trinidad and Tobago suffers from the plagued of crime and a painfully die away justice system. The social policy areas of crime and justice must be looked at urgently by the government in conjunction with the above stated policies. Through reform of the crime and justice policies, improvements in the Investment Climate will be seen and would be advantageous to both society and firms. It is known that crime places additional costs on firms through hiring of security department and losses from robberies (World Bank, 2005). Also the risk to investment associated with corruption poses a perpetual threat to investors, both opposed and local. Likewise crime affects the society as a whole corroding the investment climate. Therefore the policy should seek toFocus on shortening the process time for serious crimson crimes.Significantly increase the severity of punishment for violent crimes and public dispersal of information of such.Strengthen the anti corruption laws to reduce investment risks.There are numerous policy tools available to the government to intervene and improve the investment climate. The policies explored will improve the investment climate since both the firms and society will be benefactors.Q2. It is said that the main aims of macroeconomic policy are to achieve sustainable economic growth, a low rate of inflation, low unemployment and a balance of payments equilibriumFor ONE country of your choice (name the c ountry)a) get word to what extent these aims have been achieved over the last 10 yearsb) lead ONE of the aims and discuss the policies which the Government might use to achieve this aim over the next 10 yearsc) Recently it has been suggested that change magnitude the satisfaction of the population of the country should replace these 4 aims as the key heading of government policy. Discuss the difficulties the Government might encounter in exhausting to achieve this objective.a) The Trinidad and Tobago government, like most countries, intervenes into the working of its economy through the use of its macroeconomic policy. In order to assess their success over the recent 10 years in doing so, we must first look at what macroeconomic policy entails. Macroeconomic policy can be set forth broadly as the range of strategies used by a government to influence the workings of the economy or economic business cycle. traditionally a government can influence the macro environment of an e conomy through the use of fiscal and monetary policies. Fiscal policies are aimed at controlling government revenues and monetary policies are geared towards controlling the supply and demand for money (Griffiths Wall, 2008).Low inflation may be considered to occur where prices turf out steadily as oppose to gunpoints of high inflation where consumer prices rise sharply. During the last ten year period the Trinidad government to a full point failed to achieve low inflation order. Over the period 1999-2009 Trinidad and Tobago had varying rates of inflation as shown in Table 1.Trinidad and Tobago is often considered to have comparatively low inflation however during the period 2004 to 2005 it experienced a relatively sharp increase in consumer inflation. Thereafter a sharp increase in the price of consumer goods resulted. During this period the government adjusted its fiscal policy decreasing the tax base and increasing their expenditure on striking infrastructure projects. The periods that followed also showed increases in inflation in line with the increases in aggregate demand within the Trinidad and Tobago economy.During the last ten year period the government achieved relatively low unemployment figures primarily through the government control infrastructure program, community employment programs and investment in downstream heftiness projects. The government also sought to achieve balance of payments equilibrium through investments large manufacturing projects, increasing the availability of acreage for anele exploration and condensing of car imports market. Additionally they increased their savings base by crack bonds and financial instrument on the open market during the period.Trinidad and Tobago experienced attach economic growth over the last ten years, seen by the arranged yearly increase in the GDP. This can be attributed to the increase in foreign currency reserves from Oil and Gas exports. Also, from the supply side, the government s ought to expand the supply of labor through the tertiary level financial assistance programs. However sustainable growth is concerned not only with expansion of the economy but also with low inflationary growth and resource issues (Pettinger, 2008). In this regard, Trinidad have not been successful since there have been upward inflationary pressure in the economy join with lax environmental regulations during the period. In Addition to these facts the oil and gas reserves are being exhausted at a rapid rate though the One Horse economy.Trinidad and Tobago has done comparatively well in achieving the aims of macroeconomic policy. However, its success can be misleading since the government benefitted from windfalls from the oil and gas industry. Also the corresponding issues of growing inflation, resource exhaustion and environmental degradation still prevail.b) Sustainable economic growth can be thought to be manifest by the expansion of the Gross interior(prenominal) Product of a nation. However it is also thought to embarrass low inflationary growth and productive sustainability (Pettinger, 2008). In order for Trinidad and Tobago to achieve sustainable growth in the next ten years the government must look at the following policy initiatives1. Diversification of the economy by investing in the agricultural sector.2. Pursue the impudence of local sparing regularizes or Free trade to encourage investment in manufacturing to include removal of import duties on purchases of new capital equipment.Trinidad and Tobago has the climate, acreage and resources available for the expansion of its agricultural sector. The enhancement of this sector would lead to increases in exports, inflows of foreign currency and increases in the employment base. The improvement of this industry would also result in lower food prices resulting in lower consumer inflation (Sankar, 2010).The establishment of an economic zone would lead to increases in foreign direct investments and e conomies of denture for local producers who stand to benefit from foreign know how (World Bank Report, 2005, p.167). The government must also include tax breaks for exporters in the economic Zone which should encourage further investment.These initiatives when grouped would ensure sustainable economic growth in Trinidad in the next ten years since they would lead to increased exports, productive output and curb price inflation. Additionally the problem of resource exhaustion would be aided through diversification of the economy. From these facts it is conclusive to say that through a policy liberalization and expansion of the agriculture sector Trinidad can achieve sustainable economic growth in the next ten yearsc) Increasing the happiness of a people is purported to be able to replace the four aims of macroeconomic policy. It is often argued that by increasing happiness that output and national income will be increased whilst high unemployment and inflation will not occur.Veenhov en (2005) describes happiness as the personal entertainment one gains from his life as a whole. However, there exists no standard measure for the happiness of a nation. A government would first face a dilemma in choosing measures of happiness since it is a subjective topic. Additionally happiness has been seen to be relative such that measures of happiness may have to differ based on class or even race (Layard, 2005 cited by Griffiths and Wall, 2008, pp. 78, 79).It is important to remember that man has unlimited wants. Therefore it follows that another dilemma which would face governments with an objective of happiness is the utilization of scarce resources. are they to allocate resources to produce more luxury items?Happiness as a replacement for the aims of macroeconomic policy is a utopian ideology of new-fangled economists. The implementation of such an objective would call for massive shifts in thinking, policy and regulatory structure of the Trinidad government. These shift s call for long term planning which is evermore a problem for small emerging economies like Trinidad and Tobago. However the appraisal of happiness of the population is one that warrants further research.