What is the meaning of allocation of resources?

Meaning of allocation of resources

The most important function of economic system is allocation of resources. Most of the economic resources are limited and therefore every country most develop a system for allocating the available resources.

     In free market economy (capitalism), private sector has a key role in the allocation of resources. Every economic decisions are made by private sector on the basis of price mechanism. The government has no any role in making economic decisions.

     In centrally planned economy (socialism), allocation of resources is determined by Central Planning Authority on the basic of state priorities. The government operates all the economic activities. The government solves basic economic problems in a planned manner. There is no any role of private sector.

     In mixed economy, both the government and the private sectors are involved in the allocation of resources. The basic economic problems are solved through the cooperation between both sectors. In this system, private sector allocates resources for maximum profit and the government sector allocates resources to improve the social welfare in the country.

    Whatever be the economic system, the scarce economic resources are allocated to solve the following economic problems:

1. Problem of full employment

2. Problem of social efficiency in the allocation of resources (what to produce)

3. Problem of choice and suitable methods of production (how to produce)

4. Problem of distribution of national product/income ( whom to produce)

5. Problem of economic growth and investment (how much to invest)

6. Problem of overall economic efficiencies.