The paper "Demand Curve and Marginal Cost " is a great example of a micro and macroeconomic assignment. All factors held constant, when the price of a commodity rises, the demand falls and likewise when the price of the same commodity falls, the demand increases (Tucker, 279). The law of demand is a result of scarcity in resources whereby resources are allocated to the production of most essential goods in a given market system. If there is no scarcity in resources, the law will not hold since goods will be produced sufficiently and thus price will no longer be the determinant of demand (Boyes et al, 47).
Likewise, efficiency in the use of resources will lose its meaning since producers will not see the need of overstretching a resource to gain maximum benefit from it since the resource is already in abundance. Producers observe the objective of efficiency due to scarcity resources and they try to make maximum use of its resource. If the scarcity of resources does not exist, then the objective of efficiency cannot hold (Tucker, 279). Question 1 b. Every society faces three problems in its market systems.
The three problems are the problem of scarcity, choice and how to allocate resources. The price mechanism plays a vital role as an allocative device in helping to solve these fundamental problems. First and foremost, it plays the signalling role (Krugman et al, 60). This means that it helps to give a signal as to where resources should be allocated and where they should not. Secondly, the price mechanism acts as transmission of preference. The choices consumers make are mostly influenced by prices and they help send a message to producers on how their needs and wants are changing.
Finally, the price mechanism performs the rationing function. Prices help in rationing of the scarce resource available for production when demand in the market is higher than supply (Boyes et al, 47). The market system is characterized by so many defects. One of the defects is instability in terms of employment, growth and also inflation which affects the performance of the market. The market system is also ineffective and it tends to only satisfy the wants it has created through its advertising channels rather than the total market demand.
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