Cynthia Chiu

ECO 202

10:00-10:50

Assignment 1

Scarcity exists because resources are limited and human wants are unlimited. Consequently, an economizing problem arises which means that one has to make choices. In general, there are three ways to deal with scarcity. One of the most important ways is to use existing resources wisely so that human wants are maximized and this can be achieved by the "4Es": productive efficiency, allocative efficiency, equity and full employment.

Productive efficiency means producing at a minimum cost. This can be done by not using more resources than necessary, using resources where best suited, and using appropriate technology. In this way, waste of limited resources is minimized and the goal of maximizing satisfaction is achieved. The problems caused by scarcity will thus be reduced to minimal. For example, it will be very efficient for truck drivers to drive trucks and secretaries to type letters. In this way, society will produce the most. Whereas, if the condition is reversed, it will be very inefficient. The truck drivers may have a hard time typing letters while the secretaries may not even know how to drive trucks. As a result, both types of human resources will be wasted and less would be produced for society. The problems of scarcity may be worse and this will hurt the society as a whole and human wants will not be maximizes.

Another "E" is allocative efficiency which means producing the goods which are most wanted by the society. This is important to the goal of maximizing satisfaction because if one produces a good which is not wanted, not only the limited resources will be wasted, besides, human wants will not be maximized. Moreover, a way of judging whether the right amount is produced. Inefficiency occurs when too much or too little is produced. For example, the location of superbowl tickets is inefficient because too little is produced. In this way, human wants are not maximized and resources are not used wisely as in relation to scarcity. In addition, allocative inefficiency often means the wrong price.

Equity means fair distribution of goods. However, it does not mean equal distribution of income. How does equity deal with scarcity and the goal of maximizing satisfaction? For example, the U.S. is producing with productive and allocative efficiency and full employment is achieved. However, if everything produced will go to President Bush, the public wants will not be satisfied at all. Later, if the President decides to give each of us a pair of pants, as a result, every Americans satisfaction will go up a lot despite the fact that only the President's satisfaction goes down a little.

Full employment means using all of our resources: land, labor, capital and entrepreneurial ability. Since resources are limited already, one should make use of all resources so that human wants will be maximized by producing as much as possible. Besides, it hurts the society when there is unemployment. For example, unemployment of labor will cause a burden on some other people in the society. As a consequence, the overall human satisfaction is affected.

In conclusion, the "4Es" are important wants to deal with scarcity. However, all of them must be achieved at the same time, otherwise, human satisfaction will not be maximized.