How the interaction between consumers and producers enables optimal allocation of resources

How the interaction between consumers and producers enables optimal allocation of resources.

A producer is a person who creates an economic value through the production of goods and services needed while consumers are buyers of the produced goods and services. In that sense, these two parties are connected by trade and prices as well as other factors like supply and demand. Prices play the role of information transmission to different agents in the market. The presence of supply and demand plays a role in determining the degree and magnitude of the relationship between producers and consumers. Demand is the need for a product while supply is making the product available (Peteraf 311). Thus, an increase in the demand from consumers prompts producers to increase production, hence a higher supply for the product. Consequently, a decrease in the amount of quality demanded leads to a decrease in production.

Information on the demand and supply of a product in the market leads to a mutually beneficial relationship between the two parties, a reason why they need to be in constant interaction. Thus, a shift in the price is as a result of changes in supply and demand conditions hence transmitting information to the related parties about the state of the market (Buyya 1). For the consumers, it acts as a rationing function on whether they will be able to afford the item and the price they are willing to offer to purchase the item in order to gain profit. An increase in the price of a product means the consumers spending power will be reduced hence cutting them off the market.

On another note, it is not obvious that items produced will be consumed. Consumers have a say on the type of product they want to consume. These voting rights help the producer know what to produce. From that, we can conclude that consumers are drivers of demand and producers the satisfiers of the demand. Therefore, the relationship between the two parties helps to meet the optimal allocation of resources.
Two reasons for the trade deficit in the United States based on positive economic analysis.

A trade deficit is usually as a result of a country having more imports than its exports. For the case of U.S.A., the percentage of trade deficit has gone up because it does not produce all the items needed to satisfy its needs. It also occurred because most companies in the U.S.A. have their manufacturing plants in other countries. This means that the raw materials are exported to other countries for production but are later imported back into U.S.A. as finished products.
A case to look at is the U.S trade deficit with China as discussed by Thorbecke (3). The U.S imports a lot of consumer goods like electronics and clothes from China despite the raw materials coming from the country. This is because the cost of assembly, manufacturing and production is generally low in China. Therefore, U.S based companies take advantage of the availability of cheap labor and production costs in China to manufacture goods so as to gain the most profit from this. However, this also has an impact on the employment rate in the U.S. since many jobs are lost in the process of relocation and search of low-cost labor.
Additionally, another factor that leads to trade deficits in the U.S is a high net inflow of capital from other countries which exceeds the local investment. The U.S. market is free and stable hence attracting a lot of foreign investors, making it a leading importer of capital. Even more is that, the citizens of the United States do not save enough money that can sustain the investments to be made. The increased number of imports which exceeds the exports made by the United States causes a deficit.
Reasons for the conflict between the economic goals of growth and equity
Yes, economic goals often conflict because of scarcity. While efficiency looks at maximum production and distribution of resources with the available factors of production while equity focuses on even distribution of resources throughout the economy. A major contributor to this is the government policies that are imposed on its citizens. When the policies are designed, the government aims at maximizing the rare resources and at the same time ensuring that the benefits accrued are equally distributed among the people. The conflict occurs when market activities increase the efficiency in production which concurrently decreases the distributive equity (Mann and Katharina, 2).

An increased growth leads to a reduction in poverty and an increase in the amount of income. On the other hand, it will create a state of inequality since the rich may acquire more money hence getting a larger share in the national income, creating resentment. Also, it causes the marginal utility income to be diminished because the wealthy will aim at spending the huge amount of money acquired on goods thus increasing the utility. All this is as a result of different people of different economic classes always looking to escape poverty hence others may acquire wealth faster than others.

Apart from that, arguments on the conflicts mostly based on the cost of transactions or the effects of the unwilling redistribution of wealth in an economy. This affects the actors by restricting them from reaching the maximum production possibility limit. Also, advanced production efficiency increases inequality.

References
Peteraf, Margaret A., and Jay B. Barney. “Unraveling the resource‐based tangle.” Managerial and decision economics 24.4 (2003): 309-323.
Buyya, Rajkumar. “Economic-based distributed resource management and scheduling for grid computing.” arXiv preprint cs/0204048 (2002).
Thorbecke, Willem. “How would an appreciation of the Renminbi affect the US trade deficit with China?.” Topics in macroeconomics 6.3 (2006).
Mann, Catherine L., and Katharina Plück. “The US trade deficit: A disaggregated perspective.” (2005).