How does the free-market allocate its resources? This is a question that needs to be considered when choosing an economic theory to base a society on. The well-known neoclassical model is one that takes it direction from the laws of supply and demand, and is not one that accepts the notion of government intervention, as it believes that market forces are sufficient to keep the system working at its best. We will begin by discussing what, according to Holesovsky, are the "valuable properties of the market" with respect to the allocation of resources. And despite these properties, how do markets fail to optimize the allocation of resources? What role should the state have in fixing them? Holesovsky cites the many ways in which traditional market systems fail in accomplishing the goal of optimization of resources, and there is no doubt, these ways are plentiful, but there are also these valuable properties of the market.
[...] is clearly something about capitalism which works, and can be used as a model for other sectors, and this is what Holesovsky refers to as the valuable properties of the market with respect to the allocation of resources. (Holesovsky, 1977:195). That something that he speaks of if the private sectors amazing ability to respond to demand with supply, and vice-versa. It connect people and good and services in a way that government could never do. The market system is one that has infinite possibilities; it inspires people to progress in the pursuit of social approval and even success. [...]
[...] The law of supply and demand in the neoclassical model can be understood as “modes of human interaction” because they involve rational actors that are making rational decision which are affecting the way the market works. In a market, there are buyers and sellers, and these actors perform modes of human interaction. They set price by establishing how scarce the item is, and therefore how much it is worth. The market is not a precise measurable entity, it has its inaccuracies, but these modes of human interaction balance out the imperfections and serve to create a level of equilibrium. [...]
[...] This chapter by Holesovsky exposes us to the ways that the market can fail in terms of allocation of resources if it is left to itself. It concedes that the government's visible hand can play an important role in mitigating these failures; however, government intervention is not always the answer or the best solution. There are many aspects of the free market that have value, and government should respect these properties in deciding when to use its visible hand. The chapter by Slater and Tonkiss also address the limits of the market in securing an efficient allocation of resources. [...]
[...] In this way, the market is allowing for unfair allocation of resources. (Holesovsky, 1977:177-78). There is a third category of market failings, and they are known as miscellaneous failings of the market. This is a third category that deals with forces that include monopolistic behaviour and spill-over effects, but also other factors like human error that effect the market. (Holesovsky, 1977:178). The first example is improvidence, which refers to the way that the capitalist market mechanism neglects factoring in the decisions that are made within the institutional framework. [...]
[...] This can happen when a particular firm has the lions- share of a particular industry, and many other smaller firms share the rest of the market share. (Holesovsky, 1977:164). Monopolistic situations can also occur not when a firm becomes so big it takes over the market, but when firms collude with each other, and agree to keep prices higher than the free market would otherwise dictate. This works somewhat as if there was only one firm in the market, even though there are many. [...]
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