The Allocation of Resources Through the Public Sector

Abstract

In the market economy, supply responds to price signals. The main strengths of this method of allocating resources are (i) that, through demand, individual preferences are indicated by their effect on the price of a good; and (ii) that, through the profit motive, resources are used efficiently in supplying goods. Chapters 3–6 have explained how both are achieved, and how some inefficiencies, e.g. those of monopoly power, may be corrected by government action.