In the study of resource allocation, Friedrich Hayek argued that a pure free market economy is superior to a command economy primarily because:
Central planners cannot replicate the price mechanism's ability to aggregate and communicate dispersed, local knowledge regarding consumer preferences and resource scarcity.
Private ownership of all factors of production ensures that positive externalities are fully internalized through voluntary market transactions.
The price mechanism automatically prevents market failure by distributing income and wealth equitably according to each individual's marginal productivity.
A command economy inevitably suffers from allocative inefficiency because state-owned enterprises are legally prohibited from utilizing modern production technologies.
31 exam-style questions on OCR A Level Economics The allocation of resources. Each one has a worked solution and a mark scheme showing where the marks go.