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In any society, there has to be a way of allocating resources since these resources are scarce. Markets play a vital role in the allocation of resources in society. A market is a place where all the selling and buying activities among people who are willing to trade happen (Gitman & Mcdaniel, 2009). The market consists of buyers who are willing to purchase a service or a commodity and suppliers who are willing to sell their services or products at a given price. The market determines the prices at which services or commodities are exchanged as well as the quantity that will be sold or bought. Many people are puzzled on how markets can be used to allocate the resources in society. However, markets operate through market exchange where the transfer of the ownership of a piece of property (either a good or service) to a certain party at an agreed price occurs. There are three types of markets in the world which have different operations. They include free markets, mixed economy and command economy markets. The free market economy is seen to have the best way of allocating resources in society.
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In a free market economy, the resources are allocated from the spending decisions of consumers and producers. Here, resource allocation occurs out of market mechanism. Market determines what commodities are produced, how they are produced and the targeted consumers of the products (Tomasi, 2012, p. 1-66). The role of government in a free market economy is to supply the public goods, provide legal frameworks which markets operate, maintaining a sound currency and prevention of monopolies in the market. The government has no direct role in the allocation of resources in a free market economy. The basic economic problems are resolved by the forces of the markets. The main actors in this market are the consumers, the producers, the owners of private properties and the government. The consumers and proucers are motivated by self interests since their decision are based on private gains. The consumers aim at maximizing their individual utility or welfare while producers aim at maximizing gains in terms of profits (Tucker, 2011). Owners of factors of production usually aim at maximizing their rents, wages, interests and profits. On the contrary, the government aims at maximizing the social welfare as it is motivated by the considerations of the goods of society and not self interest. In a free market economy, almost all factors of production are owned by organizations if not private individuals. The government upholds the rights of individuals to own property through legal systems. In this market mechanism, producers as well as owners of factors of production have the right to sell what they own following the market mechanism. The government may place a limit on what can be sold or bought.
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The mixed economy also plays a vital role in allocating resources in the society. A mixed economy is characterized by both market operations and government interventions. Some resources in this economy are owned by the government while others owned by the private sector. The government has a role of allocating resources that are termed as public goods. They include major resources, for instance those used in education, health care and scientific research. Whenever there is a market failure, the government has a right to intervene and correct these measures (Anderson, 1977 p. 273-286). Operations in this kind of market respond to the price mechanism in the market. From a free market, mixed economy market is considered as the second most efficient system as far as allocation of societal resources is concerned. The key players in this type of market include the government, sellers and buyers. As the world is becoming globalized, many countries are adapting mixed economy systems. The main reason is that this type of market splits all thee available economic resources between the government and the private sector. The private sector is encouraged to participate in the utilization of resources and help to gain profits for the whole country (Anderson, 1977 p. 273-286). Some countries such as United States, United Kingdom, China and Russia have adopted this type of markets. Under this system, when the government fails to meet the desires of the society, private sector takes control hence there is economic balance in the country. Under this market system, it does not mean that the market forces are not there, market forces are present but are closely observed by the government so as to eliminate any form of oppression to the consumers. The production of any harmful commodities is stopped by the government even though the consumers and producers have a right to decide what to buy or produce (Mankiw & Taylor, 2006, p. 45-78).
The other common type of market is centrally planned economy system where the government is responsible for the allocation of societal resources. Planning of all economic activities is done by the government, and the private sector is not involved in any economical accumulation. Most people equate this system to socialism which is now passed by time. It is one of the poorest ways of allocating resources in society since it results into problems such as unemployment (Rich, & Enderle, 2004).
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In conclusion, the allocation of societal resources may be tackled in many perspectives and looking at the three types of markets is one of the ways. From the three market economies discussed above, mixed economy is the best as far as allocation of societal resources is concerned. It ensures that both the government and private sector have a say in the allocation of resource. Controlled market is not a fair way of allocating societal resources since it is dominated by the government.
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