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In economics, the field of public finance deals with three broad areas: macroeconomic stabilization, the distribution of income and wealth, and the allocation of resources. . Much of the study of the allocation of resources is devoted to finding the conditions under which particular mechanisms of resource allocation lead to Pareto efficient outcomes, in which no party's situation can be ...
Supply chain as connected supply and demand curves. In microeconomics, supply and demand is an economic model of price determination in a market.It postulates that, holding all else equal, the unit price for a particular good or other traded item in a perfectly competitive market, will vary until it settles at the market-clearing price, where the quantity demanded equals the quantity supplied ...
trade through markets from sale of one type of output for other, more highly valued goods. [ 7 ] Market incentives, such as reflected in prices of outputs and inputs, are theorized to attract factors of production , including labor, into activities according to comparative advantage , that is, for which they each have a low opportunity cost .
At this point, the net social benefit is maximized, meaning this is the allocative efficient outcome. When a market fails to allocate resources efficiently, there is said to be market failure. Market failure may occur because of imperfect knowledge, differentiated goods, concentrated market power (e.g., monopoly or oligopoly), or externalities.
Productive efficiency: no additional output of one good can be obtained without decreasing the output of another good, and production proceeds at the lowest possible average total cost. These definitions are not equivalent: a market or other economic system may be allocatively but not productively efficient, or productively but not allocatively ...
where is the marginal benefit to each person of consuming one more unit of the public good, and is the marginal cost of providing that good. In other words, the public good should be provided as long as the overall benefits to consumers from that good are at least as great as the cost of providing it ( public goods are non-rival, so can be ...
Goods that require locally abundant inputs are cheaper to produce than those goods that require locally scarce inputs. For example, a country where capital and land are abundant but labor is scarce has a comparative advantage in goods that require lots of capital and land, but little labor — such as grains.
Also called resource cost advantage. The ability of a party (whether an individual, firm, or country) to produce a greater quantity of a good, product, or service than competitors using the same amount of resources. absorption The total demand for all final marketed goods and services by all economic agents resident in an economy, regardless of the origin of the goods and services themselves ...