username3377254
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Price Mechanism: The means by which decisions of consumers and businesses interact to determine the allocation of resources. The free-market price mechanism clearly does NOT ensure an equitable distribution of resources and can lead to market failure.

Why does it not ensure an equitable distribution of resources? and why does it lead to market failure?

Thanks,
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timif2
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A market is defined as being in equilibrium when total planned demand meets total planned supply. With a free market price mechanism, this seems highly unlikely, as there are unlimited wants and and finite resources, but people also want different things and in equilibrium, a market, to an extent, means that all needs are satisfied and possibly everyone wants the same thing.

This is not the case in the real world, therefore, and this means that in real world markets, the price would be above or below equilibrium, leading to either an excess supply or demand, respectively.

Market Failure occurs when the market mechanism leads to the wrong quantity of a good being produced, or not being produced at all (excess), which is a product of the free market mechanism.

Also there’s no/very limited government intervention in a free market, so when things go wrong it’s hard to fix.
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The Financier
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(Original post by Hassm100)
Price Mechanism: The means by which decisions of consumers and businesses interact to determine the allocation of resources. The free-market price mechanism clearly does NOT ensure an equitable distribution of resources and can lead to market failure.

Why does it not ensure an equitable distribution of resources? and why does it lead to market failure?

Thanks,
It's a means of matching supply to demand, but it doesn't discriminate between who has the means to supply and demand. Part of it's function is to ration resources when demand severely outstrips supply by leading to an equilibrium that not many can afford.

For example, think about the next 'stick an 80s photo on a T-shirt' drop by Supreme. Supply of the stuff in the drop is severely limited but there's a ton of hypebeasts who want to buy their stuff. Thus the prices that are set are much higher than typical clothing meaning only those with a lot of money and the will to buy their stuff, can buy their stuff.

Market failure is more of a social concept. Think about why an inequitable distribution of stuff may not (as) beneficial for society and you have your answer
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username3377254
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(Original post by TeeEff)
It's a means of matching supply to demand, but it doesn't discriminate between who has the means to supply and demand. Part of it's function is to ration resources when demand severely outstrips supply by leading to an equilibrium that not many can afford.

For example, think about the next 'stick an 80s photo on a T-shirt' drop by Supreme. Supply of the stuff in the drop is severely limited but there's a ton of hypebeasts who want to buy their stuff. Thus the prices that are set are much higher than typical clothing meaning only those with a lot of money and the will to buy their stuff, can buy their stuff.

Market failure is more of a social concept. Think about why an inequitable distribution of stuff may not (as) beneficial for society and you have your answer
Perfect example lmao
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