In the national economy, allocation describes the distribution of all available production factors over the various possible uses. Because in order to protect the environment and to be able to save costs and time, the available resources must be allocated as effectively as possible.
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Definition / explanation
Allocation or resource allocation is understood in the economy to mean the best possible use of the resources and factors that are available for production. This Resources and factors include labor, capital, land and raw materials.
The allocation includes both the process of optimal resource allocation and the status of these. The allocation is mostly influenced or controlled by markets that are adaptable and flexible at the same time. A distinction is made between two methods of classification.
A primary goal of the allocation is to use all available resources as efficiently as possible. The reasons can be found in the possibilities of saving costs and time and protecting the environment through an optimal allocation of resources. As a result, the economy remains competitive in the long term.
Another reason for an optimized classification is that numerous valuable resources are limited in their occurrence. Allocation plays a central role here, as it is intended to prevent the economy from running out of scarce or limited resources in the long or short term. This limitation is referred to as a “distribution problem” or an “allocation problem”, regardless of whether it is due to a shortage of deposits or an excessively high demand.
Methods of resource allocation
In the case of allocation, a fundamental distinction is made between two methods: the market mechanism, in which the distribution of resources is carried out by the markets, and the intervention of the responsible state. Because the market mechanism usually only works optimally in theory. It says that the allocation of resources should be made on the basis of demand.
However, this leaves too much leeway for the respective market participants, as they can partly determine for themselves which resources they need and to what extent. For this reason, the state must intervene in the long term in order to be able to ensure an optimized and functioning market. The state not only divides the available resources, but also determines the prices, among other things.