The key problem for society is to reconcile the conflict between our virtually endless desire for
goods and services, and the limited resources in our economy and planet.
Economics: the study of how society decides to allocate scarce resources in determining what,
how, and for whom to produce. It investigates through a scientific method analysis how scarce
resources are allocated between competing claims upon their use (societal issues).
Assuming the oil OPEC example
How: Oil prices rose, firms cut their use of oil based products, and the economy became less
energy intensive and more energy efficient.
What: Consumers switch to substitute products, choosing from gas, electricity, solar, wind, bio
fuel and geothermal alternatives.
For Whom: Increased revenues for OPEC and oil exporting countries that in turn could
consume more goods and services.
Note: In developed economies, the most important process in determining the what, how and
for whom is the marketplace.
Dynamic resource allocation
Developed economies are developed because they have more capital and equipment than less
developed economies. In addition developed economies have more human capital and a
higher education level among workers.
High growth economies: These economies are characterised by two key patterns. First, they allocated a large share of their resources to improving capital stock, they save and
People decide to allocate away from present consumption and towards investment so that
future consumption could be higher.
Second, Foster institution and property rights to workers to guarantee them that they will reap
the rewards of their efforts and be granted title to what they purchased. They in turn will
commit to investing and allocating resources to production.