Market Process The Key Economic Problem - 878 Words

The market process attempts to solve the key economic problem. The key economic problem being; what to produce? How much to produce? And who receives the product? The market process addresses this problem by letting firms know what is demanded by consumers; hence, firms will produce the good that is demanded. The price dictates who should receive the product and in due course let firms know how much of the good should be produced. However, the market process may not allocate the optimal amount of resources for certain products as it only considers factors which are internal to it e.g. healthcare. The market process does not account for externalities which maybe positive or negative. Therefore certain goods are over produced or over consumed whilst others are under produced or under consumed. Therefore, in certain cases the market process does not meet the needs of people. Overall, I believe the pros of the market process outweigh the cons and therefore I agree with the statement. The price mechanism allows the price to change following a change in demand and/or supply. The price will rise or fall until supply equals demand. Therefore, the price mechanism allows the market to clear up shortages or surpluses. Ceteris paribus translates to ‘other things being equal’. This concept is used when analysing the effect of change in one variable on a second variable because in reality it is difficult to hold all but one variable constant. Imperfect competition is when anShow MoreRelatedBusiness Strategy And Managing Changing Environmental Standards, Sustainable Business Initiatives And Global Market Conditions1596 Words   |  7 PagesBusiness Initiatives and Global Market Conditions Index Sr. No. Description Annexure Page No. 1. Introduction A 02 - 03 2. Key Points B 03 – 06 3. Marketing Sustainability C 07 4. Conclusion D 08 5. 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