“The Market System and” and “The Tragedy of the Commons”
The market system
Markets are a platform for personal growth and progressive wealth creation. Therefore, the market system is formed in such a way that each individual maximizes on personal gain by evaluating the productive level of all the resources, and taking advantage of the most productive resources. With the increase in the productive level of a resource, its scarcity also increases making the cost of getting it high. Hence, the factor of demand and supply comes into play. With the increase in demand and scarcity in supply comes the increase in price level. This works at lowering the demand level to the level at which supply meets demand, commonly referred to as market equilibrium (Wheelan, 2011). Therefore, only those who are able and dedicated enough to afford a certain commodity at the raised level can acquire it.
It is evident that pricing is the mechanism used to bring into equilibrium the supply level of a commodity and the demand level (Wheelan, 2011). Using the supply and demand curve, it can be explained that when demand is too high, the price is increased to make it less affordable to the clients hence lowering the demand level. This leads to maximization of profits while lessening the pressure put on the firm to provide more than it is capable. On the other hand, where demand is lower than supply, the goods are sold at a lower price to attract more customers. Another mechanism used is holding back the goods in order to create a shortage, which will lead to a rise in the price.
This process of increasing or decreasing the price level of a commodity to bring equilibrium in the market only works to a certain extent. This extent of decrease or increase in demand level, in relation to change in price, is called price elasticity of demand (Wheelan, 2011). On the other hand, the extent of change in supply in relation to a change in price is the price elasticity of supply. This in totality works at creating market equilibrium. Elasticity varies with the type of good in demand or supply. Necessity goods are inelastic as they are vital for everyday life. An example of a necessity good is food. Luxury goods, on the other hand, are elastic in nature since an increase in price lowers demand and the target market is streamlined.
Market systems are not fair, as they do not affect all markets in the same way. For instance, the major disparity in income level is only applicable to the people who have access and appeal to a large market base (Wheelan, 2011). In the high ranked payment system, only a slight difference in performance could lead to some of the talented and highly educated taking remuneration much higher than their counterparts who are almost as talented or competent as they are. This is because this slight difference in performance especially in the high-level sports sector, or in the celebrity world will lead to a major difference in the profit margin of the organization or company they work for due to increased popularity and preference among consumers. Therefore, in professions like teaching where the market that can be accessed is much lower than in that of celebrity sports and the media, a major difference in skills and education level will only lead to a slight increase in the income level.
Markets also work at creating innovation and technological advancement. This is by advancing in technology where firms are able to minimize their operational costs while at the same time providing products that are more satisfactory to their clients. Technology growth has contributed to the decline in wage levels among the lower ranked personnel in various ways. This can be referred to as creative destruction. With the advancement in technology, people in the lower level jobs requiring less skill become replaced by technology such as clerks being replaced by voice mail services, hence lowering their demand, which lowers their wage level.
Using technology, firms are able to produce more at a lower cost and shorter period than they would through human labor. Hence, jobs requiring the use of muscle are becoming scarce due to technology replacing humans as they are faster, more efficient and less costly, hence the demand for jobs requiring intelligence and expertise have taken over. This is due to the principle of marginal returns (Wheelan, 2011). Where there is use of human labor, for every input of labor there is a rise in the returns up until a certain level where more addition of labor does not translate into an increase in marginal returns. Using machinery and technology, the level at which a cease in the increase in marginal returns begins to appear with every increase of labor is higher and considering that use of machinery for some jobs is cheaper, firms have turned to machinery than use of human labor.
Markets are crucial as they bring together consumers who are interested in utility maximization and firms whose goal is profit maximization. In order to attain profit maximization, firms ensure that they maximize on the resources they have, and this especially applies to personnel and employees. Over the years, in the American economy it has become evident that the wage level for high education and skill has risen considerably while the wage level for blue collars jobs and low-skilled labor has been on a constant decline. This is because of the high demand level for unique skills and advanced education in comparison with the availability of people with this level of skill and educated. In labor, with scarcity as compared to demand level, the price level increases.
High skill and education level enable one to be competent enough to result in a major profit boost for the company, hence the company is willing to pay much higher wages as the productivity value gained from such labor is also high. Specialization in a certain field enables the creation of scarcity in various fields, hence enabling one or a country in whole to benefit by prevailing in what they are best at (Wheelan, 2011). Using comparative advantage, one can specialize in what has the lowest opportunity cost. For instance, in Arab nations one can specialize in a field dealing with oil as that is what has the highest returns. In comparative advantage, one compares various options and pursues that with the highest benefits and leads to the least cost.
The tragedy of the commons
The essay seeks to prove that not all problems can be solved by technical means, as some require a change in techniques in dealing with and sharing natural resources. In this case, the shared natural resources are the commons. It is called a tragedy, as the problems arising from misuse and overuse of the resources are foreseeable and a change in reasoning of humans in their idealism or morality can ensure that these issues are avoided. Such problems that cannot be solved by technical means are raised by population growth in the human race, whereas the shared natural resources remain constant (Hardin, 1968). The problem of the tragedy of the commons is majorly caused by self-reliance in the human race where everyone is concerned with maximization of individual benefits and less concerned with the overall consequence of their action to the society as a whole. This is evident in parents breeding excessively and not being able to provide for all their children. This results in nature taking its course to manage the higher numbers through catastrophic disasters, hence showing that every action in nature has a reaction as is stated by the Malthusian catastrophe theory. According to Garrett Hardin, the welfare state has a part to play in this tragedy by providing policies that allows families to dictate the amount of children they wish to have regardless of their ability to take care of them (Hardin, 1968).
As the tragedy of commons is brought about by the limits in natural resources shared, technical solutions cannot solve issues arising from over-population (Hardin, 1968). Hence in order to maximize population, resources should be spent on survival and minimize resources out of survival needs. To maximize on the resources, population should be kept at a minimum in order to improve the quality of life. It is therefore not possible to maximize on both population and natural resources. Hardin identifies resource management solutions to the problems arising from over-population. The example of herdsmen is used where in a commonly shared pastureland each herder wishes to maximize on yields hence acts in self-interest. In order to maximize on yield, each individual adds more animals to his herd to gain from the increased numbers. This affects negatively the pastureland as the number of animals benefiting from the land increase while the land does not increase in size. This has a negative impact on the other herdsmen who find the rational course of action being to increase their own herds. This leads to overgrazing which leads to land deterioration and eventually negative impact to all herdsmen.
For long-term solution to this problem, administrative bodies can implement policies such as privatization, regulations and the use of common sense (Hardin, 1968). Hardin resonates that complete freedom is realized by the recognition of necessity. Hence, in order to achieve complete freedom, management of natural resources, which are common, has to occur.
Hardin, Garrett W. “The Tragedy of the Commons.” Science: 1243-12481968. 1968. Print.
Wheelan, Charles. “Introduction to Public Policy.” W. W. Norton & Company: New York. 2011. ISBN-13: 978-0-393-92665-1. Print.