Resource Allocation in Economics

Questions and Answers

To allocate resources to serve each person in the best way possible

Because they are driven by consumer sovereignty and profit motives

Economic efficiency

Consumer sovereignty and profit motives Signup and view all the answers

Due to missing markets or nonexistence of markets Signup and view all the answers

Minimization of waste and inefficiency Signup and view all the answers

Allocative efficiency Signup and view all the answers

By both the market and the government Signup and view all the answers

Because the resources of a society are limited in supply Signup and view all the answers

To minimize waste and inefficiency Signup and view all the answers

Through government budgeting and revenue and expenditure activities Signup and view all the answers

Because of the nonexistence of markets for public goods Signup and view all the answers

The largest possible output of goods and services Signup and view all the answers

Consumer sovereignty and profit motives Signup and view all the answers

There is a misallocation of resources Signup and view all the answers

Economic efficiency is a result of optimal resource allocation Signup and view all the answers

Study Notes

Resource allocation refers to the way resources are distributed to produce goods and services in an economy, considering the limited supply of resources and unlimited wants of society.
Optimal allocation of resources ensures minimal waste and inefficiency, serving each person in the best possible way.

Market economy is prone to malfunctioning, leading to inefficient resource allocation.
Private goods are sufficiently provided by the market, but public goods and merit goods are underproduced.
Markets may fail to allocate resources efficiently due to:
- Imperfect competition and monopoly power
- Inability to provide public goods, such as defense
- Incomplete markets, leading to underproduction of merit goods

Allocative efficiency utilizes limited resources to produce goods and services that maximize value to society.
Efficient allocation achieves the largest possible output from existing resources and technology.
Perfectly competitive markets and rational decision-making by economic agents are assumed to lead to efficient resource allocation. However, markets are rarely perfectly competitive in reality.

The state plays a role in resource allocation through its revenue and expenditure activities in governmental budgeting.

Resource allocation refers to the way resources are distributed to produce goods and services in an economy, considering the limited supply of resources and unlimited wants of society.
Optimal allocation of resources ensures minimal waste and inefficiency, serving each person in the best possible way.

Market economy is prone to malfunctioning, leading to inefficient resource allocation.
Private goods are sufficiently provided by the market, but public goods and merit goods are underproduced.
Markets may fail to allocate resources efficiently due to:
- Imperfect competition and monopoly power
- Inability to provide public goods, such as defense
- Incomplete markets, leading to underproduction of merit goods

Allocative efficiency utilizes limited resources to produce goods and services that maximize value to society.
Efficient allocation achieves the largest possible output from existing resources and technology.
Perfectly competitive markets and rational decision-making by economic agents are assumed to lead to efficient resource allocation. However, markets are rarely perfectly competitive in reality.