Allocate Scarce Resources

In this essay I will go into the allocation of scarce resources that have alternative uses and how different economic systems allocate scarce resources differently. First I'll start by saying that in a free market prices arnt why you can't have everything you want they simply indicate that there isn't enough of everything to go around ie they indicate the scarcity of goods. Prices allow producers to allocate resources most efficiently and are why resources tend to flow to there most valued uses in a free market. The main thing to learn from this essay is that profits tell producers what to produce more of and losses tell producers what to stop producing or produce less of. An example of how profit and loss help allocate resources would be if the demand for cheese increases consumers buy more cheese the increased profits either make the cheese producers produce more cheese or other producers enter the cheese

Oil is a common example, as extracting oil is quit expensive. But this is another way prices allocate scarce resources. When the price of oil falls low-yield oil wells are closed down, because the cost of extracting oil from the well would exceed the price the oil would sell for. If the price later rose or more efficient ways of extracting oil was discovered the wells would then be re-opened. This has been the case for many oil wells in Venezuela and Canada.

Labor is another scarce resource and is allocated just the same despite many peoples emotional opinion. Prices allocate labor just the same and give corporations the incentive not to employ to much labor and have workers sit around "just in case" when they could be doing something productive. In the Soviet Union since there were no prices for labor factories would keep tons of extra workers on hand just in case they needed them, when they could have been doing something productive somewhere