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Why do economists believe that the market system is the most efficient economic system...

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yaga49 | Valedictorian

Posted April 11, 2013 at 10:34 PM via web

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Why do economists believe that the market system is the most efficient economic system for allocating resources?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted April 11, 2013 at 10:53 PM (Answer #1)

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Economists believe that the market system is the most efficient system because it is a system that automatically moves resources to where they are most needed.  No other system does that.

In any economy, resources must be allocated.  There must be decisions made, for example, as to how much wheat flour will get made into tortillas, how much will be made into hamburger buns, and how much will be made into bread.  In a market system, this is done automatically.  If, for example, not enough flour is being made into tortillas, the price of tortillas will go up.  Suppliers will see this and will make more tortillas so as to make more money.  In a command economy, this process would have to go much more slowly.  A bureaucrat would have to notice that tortillas were selling out faster than they should be.  That person would then have to decide what to do about that fact and probably get permission to do something.  Higher-ups would have to be consulted about whether it was okay to reallocate resources.  All of this would take a long time. It might not even happen at all if the people who made bread had more political power than those who made tortillas.

Thus, in a market system, market forces encourage companies to move as fast as possible to reallocate resources.  This makes the market system the most efficient at allocating resources.

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