How can the government influence the allocation of resources in a country?

2 Answers

pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

The government can have a tremendous impact on the allocation of resources in a country.  This is especially true in countries where the government is more deeply involved in the economy, but it is true even in relatively laissez-faire countries such as the United States.

In countries such as China, the government is deeply involved in the allocation of resources.  It helps to decide which industries will be promoted.  It owns many of the major companies.  Because of this, it can help to decide, for example, whether resources will be devoted to the production of consumer goods for the domestic market or for export.

But even countries like the US have governments that can affect the allocation of resources.  For example, the US government subsidizes health care through Medicare and Medicaid and through the fact that it does not tax the value of health insurance that people get as part of the compensation for their jobs.  This makes it relatively easier for health care providers to prosper.  This means that more resources are allocated to health care than might be allocated if the government did not subsidize this industry.

In these ways and many others, governments can affect the allocation of resources in an economy.

jameadows's profile pic

jameadows | High School Teacher | (Level 3) Senior Educator

Posted on

The government can help influence the allocation of resources, or the ways in which producers have access to the means of production and the ways in which goods and services are distributed among consumers, in different ways. In a command economy, which is an economy in which the government controls which goods are produced, the government controls the allocation of resources based on their political needs and wants. In a capitalist or free market economy, the price system largely decides how resources are allocated or distributed among consumers and used. However, in a capitalist or semi-capitalist society, the government has the means to direct the allocation of resources. It can, for example, offer tax breaks or subsidies to private companies to produce needed goods and services, such as affordable housing or clean energy. In addition, the government can decide to offer these goods or services itself, such as building roads or hospitals, if the private sector does not do so.