Economics is known as the study of scarcity. Scarcity is the fundamental economic problem of having seemingly unlimited human needs and wants, in a world of limited resources. To minimize scarcity we need to make choices, this is where the five e’s of efficiency come in to play.
Economic growth is the increase in the ability to produce new resources. This is caused by having more resources, better resources, and having better technology. To achieve maximum satisfaction we need to use our existing resources wisely.
Productive efficiency is when we produce products at a minimum cost. By producing at a minimum cost fewer resources are used and more can be produced. This can be achieved by not using more resources then necessary, by using resources where they are best situated, and using appropriate technology for the job. We can maximize satisfaction by not wasting resources and using resources where they are best situated. An example of this is if Harper hired thirty janitors to do the job that five janitors could do. Could the janitors stretch out the work so that all thirty people are looking busy, sure they can but that would be using productive efficiency. They should let the other twenty five workers go and only keep the five that are needed for the job.
Allocative Efficiency is using our limited resources to produce the right mix of goods, more of what people want, and less of what people don’t want. How does this maximize society’s satisfaction and reduce scarcity? Well if we took all the steel would we want to produce more horseshoes or cars, the better choice would be to use most of the steel on cars because that is what the people want. It would Allocative inefficiency if we create too much or too little, that would cause a shortage or a surplus. This would affect scarcity the same way that it did with the grain overproduction in the states.
Equity is the fair distribution of income, or goods and services. This cannot be reduced do to the fact...
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