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Market Effiency 1

Running head: MARKET EFFIENCY

Efficiency, Security, and Liberty in the Market

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Market Effiency 2

MARKET EFFIENCY

Efficiency in this context can be defined as putting in input or resources into a

system of production that result to maximum output at lowest cost. The production

system and process is said to be of efficiency if it produce optimal result are achieved at

minimum cost. Efficiency ensures maximization of output and minimization of cost

production hence effective utilization of resource in production process.

Efficiency is an important factor in the market. In the market there is exchange of

goods and services. The exchange in the market should take place when at least one party

is left better off and no one is left worse off due to the process of trading in the market. In

the process market enable the achievement of parental efficiency in the society hence

development.

On other hand resource allocation in production process is important. Individual,

society, region, or a country will maximize in producing what it is has higher efficiency

in production and specialize in that, with the aim of exchanging for what he does not

have or what he/she has no comparative advantage. Therefore an individual, household,

region or country specializes in production of what it has a higher comparative advantage

in production with the aim of exchanging in the market.

A household can not effectively be self-sufficiency in product and produce all it

household goods and services, hence it has to obtain what it cannot produce effectively

from the market. Market enables efficiency in production. Market theory assumes that if

all the exchanges in a system are efficient the outcome will be efficiency that leads to

maximum social welfare in the community (George, Akerlof and Yellen, 2001).

Market Effiency 3

In free market system there are various challenges to efficiency from the market.

These challenges emanate from market failure. They include externalities, failure to

effective provision of public goods and services, some sector some parties influence the

market price, lack of sufficient information in the market for buyers and seller to make

rational decisions and incomplete market.

Externalities entails social cost there is not accounted in the market value or

economic value of the commodity or service. When goods and services are produced

there is social cost that is incurred by an individual, household, community or a region

that are not part of the transaction or process of production. These include traffic

congestion, degrading of the environment due to pollution and overexploitation of the

nature resources.

Market fails in provision of public and social goods and services. These include

security, provision of transport network, and provision of clear water, sanitation and

waste management. Market failures can resource to imperfect competition due to

monopolies and oligopoly in the free market. This imperfect competition can result to

inefficiency.

In the market some agent lack sufficient information about the market situation

hence they fail to make rational decision in their choices. Therefore the consumer are

limited to achieve utility they could have obtained if the had the fully information. This

could lead to market inefficiency. If producer have full information of the market

condition he or she is likely to invest in a way that he/she has incurred the least cost for

optimal output.

Market Effiency 4

Efficiency faces various challenges from the polis. In the polis there are

interaction of individual, household and communities in general. The market theory

assumes that the exchange is voluntary which result to maximum utility hence optimal

happiness and satisfaction. In the polis there are manipulations inside the market.

Producers in the service sector try to influence the consumers. Issues of unequal

distribution of income are also challenges to voluntary exchange and this effect

efficiency. Some sector in the polis experiences manipulation of the contract that emanate

from long term relationship that lead to detrimental of the efficiency.

In the polis there are incidences of traffic congestion. Traffic congestion passes

hidden cost to the producer or supplier; this result to inefficiency. Traffic congestion also

leads to social cost. With traffic congestion there is increased pollution as there are

increased emissions of CO

from the automobiles and high level rate of fuel consumption

per kilometer.

Some industries should have been better if they were situated near the consumers

in the polis since there are customer oriented industries. However because of limited

spaces and high value of land some firm are forced to invest outside polis areas and they

incur the cost of transportation to the consumers; this result to inefficiency.

The trade-off theory between equality and efficiency describe the social cost of

income redistribution to achieve equity among various group in the society. The

redistributive policies of the income in the country result to misallocation of resources;

this imply inefficiency due to redistribution policies that aim to enhance equality; this

indicate the relationship in a way to the marginal trade-of between equity and efficiency (

Browning, 1998).

Market Effiency 5

There are diverse needs in the society that are based on individual, household and

society level. Therefore policies are design to pursue the objective of achieving these

needs starting from collective needs downwards to household and individual aspect.

There three dimensions of needs. These needs in the polis can be classified into public

and social goods.

Dimension of needs includes absolute and relative need, political dimension, instrumental

need and dimension of protection from the needs of future. There are some complications

of need in the polis. These include Neo-pluralism and Marxist. In aspect of neo-pluralism

needs in the society cannot be equally recognized and only needs that are accompanied

by greater impacts are addressed. Those who do not have such needs feel deprived. For

example need for free primary and secondary education; some people do not have young

children are not helped by policies of such provisions. On Marxist aspect only a few in

the society with influence have the control of the society and most of the people in the

society do not know what is actually needed and benefit for the provision of the need.

Security can result reduced efficiency and productivity. In some instances for

example transport sector there has been security-efficiency trade-off. The security of

goods and people in physical screening and requirements for the movement of hazardous

commodities requires time, resources and manpower. Security operations limit efficiency

of movement of goods and people. Efficiency can be view is this context as the ability to

move goods and people with the minimum time. Therefore is need to struck trade-off

between the two.

Liberty in this context can be defined as the having right and ability to express in

a way a person has chosen especially in consumption and utility aspect. Liberty plays a

Market Effiency 6

role a great role protecting free market and the sovereignty of the government. This

ensures the society is working properly.

The liberty-security trade-off theory result rising p of some issues. Security

through policies prevents damage at the expense of liberty restriction. Society,

households, and individual are prevented from working properly due to constrain by

various structural system legalization and some groups be denied of their rights

depending on their status (Office of Inspector General, 2007).

In the aspect of the liberty-equity trade-off theory, there should be a restriction of

liberty in dimension of resources to the benefit of marginalized group in order to achieve

perfect equity. However, this result to emerging of some issues which included when

there is increased equity through redistribution, more people get increased access to

resource, with increased access to resource lead to increased liberty. Therefore increased

equity has a positive impact on liberty.

Market Effiency 7

References

George A. Akerlof, Yellen, J., L., (2001), Efficiency wage models of the labor market.

Cambridge University Press, New York USA.

Browning, (1998) The Marginal Welfare Cost of Income Redistribution. Southern Econ.

Office of Inspector General, (2007), Transportation Security Administration's Oversight

of Passenger Aircraft Cargo Security Faces Significant Challenges. U.S. Department of

Homeland Security.

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