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Economics is the study of the allocation of scarce resources amongst unlimited and conflicting end uses

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  1. Introduction
  2. Explain what is meant by this statement
  3. How efficiently does the free market allocate scarce resources?
  4. Analysis
  5. Conclusion

In this world that we live in, there exists a problem due to the conflict between the scarcity of resources and the unlimited wants of the people. Economics is concerned with dealing with this problem, as efficiently as possible. Why, then, are resources scarce? The problem of scarcity arises due to two main reasons: the limitations that there are to the supply of resources, and the unlimited desires of the people. The idea of resources is closely intertwined with that of factors of production, that is to say, land, labor, capital, entrepreneurship and information (only in recent years has the latter been considered a factor of production, as information becomes increasingly important and significant in a knowledge-based economy). These factors of production, which serve as inputs by which the outputs (namely the goods and services that people desire) are produced, are unfortunately limited, whereas the wants of the people are not. For example, we say that land (which includes all the productive resources that nature supplies) is scarce because it is needed for many purposes and wants such as construction of homes and the quenching of thirst, as opposed to how little of it there is, in comparison. Therefore, resources are scarce simply because of the limit to their supply relative to people's wants that know no boundaries.

[...] Thus, the goods and services may not actually reach those who actually need or want them. For instance healthcare may not be available to those who are really in need of it, due to financial reasons. In this sense, the scarce resources are not allocated or distributed to maximum efficiency since they are out of reach in such cases. Thus, I believe that the free market allocates scarce resources efficiently, but to a large extent only. Bibliography Sloman, John: Economics, Financial Times Prentice Hall, 2006. [...]

[...] In a nutshell, therefore, economics is, truly, the study of the allocation of scarce resources amongst unlimited and conflicting end uses. How efficiently does the free market allocate scarce resources? In the free market, decisions regarding the allocation of scarce resources and production are based on prices generated by voluntary exchanges among producers and consumers. Although it relies on the price mechanism to allocate scarce resources efficiently, to a large extent, it is not without its own limitations and demerits. [...]

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