Advantages of leaving resource allocation, Macroeconomics

What are the advantages of leaving resource allocation to price allocation?

Ans) The 5 benefits are Neutral, Flexible, Freedom of choice, No administrative cost and lastly Diminished incentives. Distinguish among diminishing returns and diseconomies of scale. Diseconomies of scale I guess means as you make more it becomes more costly to produce.

For example, you make output 1 for $2 but output 2 for $5 thus the second one needed $3

Now let us say input for output 1 had to be doubled for input 2. One land gave output 1. Output 2 required 2 lands. Then there are not diminishing returns.

Though, as second land was costing $3 there was diseconomies of scale.

 

Posted Date: 4/1/2013 5:04:16 AM | Location : United States







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