Question

Market economies promote disparities in income distribution even when resources are optimally utilised. Substantiate this observation.

Answer 1

In the market economies, resources are optimally utilised because every producer focuses on maximisation of output per unit of input. But, disparities in income distribution are highly pronounced because:
(i) Resources are allocated to the production of those goods which yield high profits. As a result, goods are produced largely for richer section of the society and the poor suffer deprivation.
(ii) In the market economies, jobs are outsourced to those economies where labour cost is low. This causes a cut in domestic employment. Accordingly, wage component of GDP tends to shrink even when profits tend to shrink even when profits tends to rise.