Efficient Use of Scarce Resources

Write an essay on the following:

“Economics is concerned with the efficient use of scarce resources for the purpose of attaining the maximum possible satisfaction of our material wants.” (Jackson & McIver p.3)

This essay aims to discuss about efficiency in economics and how two differnt types of market, i.e. competitive market and monopoly market, contrast tremendously in efficiency. In economics context, resources are limited while our wants are unlimited. As such, it is important that firms are efficient in using their resources. In the later part of this essay, I will address how firms in competitive market are usually considered efficient and firm in monopoly market are the opposite.

It is often said that efficiency is attained when maximum satisfaction is obtained from the limited resources available to a particular firm. Satisfaction is the benefit that both consumers and producers/suppliers get to enjoy. It is often referred to as the marginal benefit (to consumers) and marginal cost (to producers/suppliers). Marginal benefit is described as the additional benefit a consumer gets when he consumes one more unit of a particular good/service. It is usually represented by the demand curve. The marginal cost on the other hand, is the additional cost to producers/suppliers when the produce one more unit of good/service. The marginal cost includes the cost of raw materials, salary paid to workers and other cost associated with producing this additional unit of good/service. It is often represented by the supply curve. Maximum satisfaction is achieved when the marginal benefit equals to the marginal cost. In short, economic efficiency is obtained when the marginal benefit is equal to marginal cost; i.e. the point where the lines intersect each other.

At the start of the business life of a firm, it has to decide what good/service they want to produce. Given the resources available to the firm and the state of technology at the given point of time, firms...