I came across the following quote in a lecture:
"In economics, we often talk about the power of markets and prices to direct resources to higher valued uses." - Mike Munger
Is this ability of the markets to direct resources to higher valued uses considered to come into effect in the long run or the short run?
Everything below this point has been edited keeping the comment of user:Giskard in mind.
I suspect it is a long-run attribute of markets for the following reason:
Imagine that two firms A and B are bidding for raw materials. Society values the good of firm A more highly than that of firm B, and therefore is willing to pay more for the former than for the latter. In the short run, there may be discrepancies in their respective efficiencies, such that A is less productive and therefore less profitable than B. In the long run, A can adjust its methods of production and "catch up" with B in terms of profitability, thereby ensuring that it is able to outbid B (remember that society is willing to pay more for A's output). To me, it looks as if only in the long run can the resources be seen to be allocated according to its highest value to society, due to the above reasoning. Is this argument a sensible one?