|Business Economics |
|Why might prices not lead to the socially efficient allocation of resources paying particular attention to the issue of monopoly? |
|Vaughan Galt |
Why might prices not lead to the socially efficient allocation of resources paying particular attention to the issue of monopoly?
The economic problem exists because “resources are scarce in relation to their demand” (Sloman, 2006). For example in some countries, labour, capital and natural resources may be in abundance, but are still scarce in comparison to the demand of these goods so in theory if all people’s wants and needs were met, the economic problem would not be an issue. In reality however, this will never be the case and someone has to decide whether it is a group, a society or an individual, exactly how these resources will be utilised. If certain resources are used in one way, say for example military expenses, you will lose the option to use them in another, like say healthcare and this is referred to as ‘opportunity cost’.
The Neo-Classical ‘mainstream’ economists believe that “economics is the analysis of choice” (Sloman, 2006). This means that most decisions which are made in regards to the allocation of resources and also take into account the best way to meet the demands of a particular...