Resource allocation and relative prices

Question 1

Define resource allocation

Answer 1

Is the study of how effectively resources such as land, labour and capital are directed towards the production of g+s. An example of a land resource would be coal.

Question 2

Who determines the prices in a competitive market?

Answer 2

Consumers willingness to buy (demand) and the availability of the good or service (supply).

Question 3

Define relative prices

Answer 3

Is the price of a good or service compared to another. Changes in prices will cause businesses to assess their products and either enhance them or improve production.

Question 4

What is the effect of allocative efficiency on living standards?

Answer 4

Living standards are optimized as consumers needs and wants are being met as well as producers receiving higher profits.

Question 5

What is higher competitions effect on living standards?

Answer 5

• Will drive consumers to achieve technical efficiency in order to make profits (prices kept low of consumers-positive effect of living standards)
• On the other hand it may cause stress for workers with increased workloads (negative impact on living standards).