Functions of market:-
1) Allocations of a given stock of consumer goods:
The main function of the market is to allocate the goods to the ultimate consumers. The market rations (distributes) the consumer goods to the consumer on the basis of their purchasing power. If the income distribution is not to be questioned then thedistribution of goods amongst the consumers may be efficient and fair but in case of unequal distribution of income (reality) the distribution of goods becomes discriminatory.
2) Allocation of production between commodities:
Due to limited resources available, only limited goods can be only produced. Hence question of what to produce arises. Whether to produce more of consumer goods like bread, butter, clothes etc., or defence products like bombs, guns, tanks etc. Cannot be decided a priority.
Socialist economy: decisions related output are taken at the government level.
Capitalistic: the market directs the allocation of production between commodities, according to the criterion of max profit.
3) Allocation of factors of production amongst their various uses:
Since no country has unlimited supply of factors of production , allocation is a problem which every country has to overcome for optimising the socially necessary outputs on the one hand , and for maximising the factor incomes on another .
In planned economies, the problem of resource allocation is tackled by the state with set priorities.
In free economy for different factors of production exist where free play of forces of demand and supply determine factor prices.