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What is economics?

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Economics, in one aspect, is the study of how individuals, societies, and countries manage to deal with the problem of scarcity. Scarcity is a problem within economics because the wants of people are unlimited and the resources available to fulfil those wants are finite (Sloman, 2001). The answer to scarcity is efficiency which Gowland and Paterson (1993) described as the most benefit from a certain amount of scarce resources. Within the economic system, there are several types of economies, each generating a different level of efficiency. It is said that an economic system that has allocative efficiency, productive efficiency, and equity will be effective. Along with the latter mentioned, the division of labour and comparative advantage, when exploited also bring about the effectiveness of a system. Within an economic system there are two contrasting ideals: the market economy and the planned economy. A free-market or laissez-faire economy makes decisions on an individual level with minimal government intervention. On the other hand of the spectrum lies the planned economy where all economic decisions are made by the government (Sloman, 2001). Both economies have their advantages and disadvantages. In a free-market economy there is freedom of choice, high incentives, and the belief in consumer sovereignty, yet, there are problems such as inequality of income, macroeconomic instability, and the chance of market failure. ...read more.


Nevertheless, labour division can also bring down efficiency and decrease output per person . Drawing wires for almost 20 years, a worker has become an expert at his task, yet he can lessen productivity. When one task is repeated day in and day out, the work becomes monotonous, making the worker less motivated. Additionally, if one part of the assembly line is missing the entire factory stops production (Young, 2003). Furthermore, the effectiveness of specialising depends on the nature of the market. If the market is small, it is unwise to dedicate entirely to one aspect. For example, a country carpenter must deal with every aspect of carpentry, from making wagons to carving wood. On the contrary in large populous cities the assistance of workers, who would specialise in one area of carpentry, is required (Smith, 1999a). All the same, the benefits of labour division do outweigh the minor disadvantages when compared. Comparative advantage, often referred to as the "Ricardian Model", is another vital factor in every efficient economic system (Suranovic, 2003). Adam Smith defined comparative advantage, saying, "What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom. ...read more.


On the contrary, countries such as Burma and North Korea, which are isolated from the world, have such low developed economies that electricity is unavailable and production levels are very low. It is said that "without comparative advantage, there is no reallocation of resources within each country that will increase the production of commodities" (Lipsey, 1983 p.425). Moreover, "to pursue economic growth, you pursue a policy of free trade to maximise the gains from exchange. A country can specialise in the industries where it has comparative advantage and import cheaper product from countries..." (Bronk, 1998 p.91). The combination of division of labour and comparative advantage spur an economy into being exceedingly effective. Altogether, an economy's main problem is that resources are scarce and ways to efficiently use those resources are needed. Allocative efficiency, productive efficiency, and equity help spawn productivity alongside labour division and comparative advantage. Labour division helps organise and better employ the resource of labour. Comparative advantage helps saves time and resources, which a producer might waste if making something that he is not good at, by making something with a lower opportunity cost. A producer who can come to grips with the problem of scarcity knows efficiency can prevail. In theory, efficiency maybe simple to achieve, but even the strongest of economies can sometimes fail. ?? ?? ?? ?? 1 ...read more.

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