Menu Close

Resource allocation and economic systems

Resource allocation and economic systems

This article examines the importance of resource allocation and economic systems in a modern society. Today, the economy of a society is based on the production of goods and services. These are produced by various actors with different roles in the process. There are those who invest their capital to create new companies or buy existing ones, and those who work in them providing their labour. However, the methods by which resources are allocated differ from one society to another.

In some societies, like in a market economy, individuals have free access to resources and can exchange them as they please. In other societies, such as a planned economy, there is centralised control over the allocation of these resources. This article takes an in-depth look at how resource allocation affects the society and an economic system’s ability to meet its goals and objectives.

What is resource allocation?

According to Augustyn (2020) resource allocation refers to apportionment of productive assets among different uses. It is the process of choosing how to spend, distribute, or make use of limited resources. It can include financial, human, and material resources or any combination of these. In a modern society, there are always limited resources for investment and production, and therefore there needs to be a mechanism for allocating them appropriately.


It is worth mentioning that there can be a political will to allocate resources in one way or another, but it is ultimately the needs of the people that will determine how these resources are allocated. This depends on demand, supply, and other factors. In this way, resource allocation is an ongoing process that will never be fully completed in a society. Resource allocation can be centralised, decentralised, or involve a hybrid of both methods.


Importance of resource allocation in society

Resource allocation is one of the most important and fundamental aspects of a modern society. It determines how production takes place, who is employed, and the type of products/services that are produced. It dictates what the government does and how it performs. In fact, it is the kernel of the society.

Economic systems

Economic systems are the frameworks and structures that govern how a society allocates its resources. These are the rules, regulations, and processes that govern the exchange of goods and services within a given society. There are many different types of economic systems, and each has its own set of rules for how businesses and people can engage with one another, what can be produced, and how those products are distributed. The most common types of economic systems are planned economic system, market economic system, and mixed economic system.

Resource allocation in a market economy

A market economy is based on the idea that private individuals will allocate resources most efficiently. It is a decentralized system in which there is free access to resources. The market economy is based on supply and demand, and the price mechanism. The production of goods and services is driven by consumer demand.

In a market economy, the market allocates resources based on a price mechanism. This means that the price of a good or service is determined by its supply and demand. If there is more demand than supply, the price will rise. If there is more supply than demand, the price will fall.

The price will also change depending on the availability of substitutes and compliments. A substitute is a good that can be used in place of another good. A compliment is a good that is used with another good. The availability of these goods impacts the price of the original good. This price mechanism will also determine the amount of money that people get for their work. Prices can also be impacted by the amount of money available in the system.

Resource allocation in a planned economy

According to Cambridge Dictionary (2022) a planned economy is an economic system in which industry is controlled by the government and the government makes all decisions about what to do with the money made. It is highly centralised, with the government controlling virtually all aspects of the economy. There is no free access to resources in this type of economy.

The government will determine the amount of resources available, the amount of resources required for investment, and the amount that will be consumed by the population. It will also determine the amount of work that people will do and the amount of goods and services that will be produced. There is no real price mechanism in a planned economy. Instead, the government will determine the amount of resources that will be used for investment, consumption, and work based on a particular set of criteria. This can be based on an ideological or political objective.

Summary of resource allocation and economic systems

Resource allocation is an essential part of the way in which a modern society functions. There are different methods by which resources can be allocated, but in all cases, it is important that every citizen has access to them. There can be advantages and disadvantages to the different methods of resource allocation, and it is up to each society to decide which method they want to use.

Hope you like this article: Resource allocation and economic systems. Please feel free to share the article link on social networking sites to support our academic work. You may also like reading the following articles:

Factors affecting economic growth

Types of economy (Economic systems)

Advantages and disadvantages of free market economies

Last update: 25 October 2022


Augustyn, A. (2020) Allocation of resources, available at: (accessed 24 October 2022)

Cambridge Dictionary (2022) Planned economy, available at: (accessed 24 October 2022)

Author: Joe David

Joe David has years of teaching experience both in the UK and abroad. He writes regularly online on a variety of topics. He has a keen interest in business, hospitality, and tourism management. He holds a Postgraduate Diploma in Management Studies and a Post Graduate Diploma in Marketing Management.

Related Posts