A given economic arrangement is efficient if there can be no rearrangement which will leave someone better off without worsening the position of others. One important aspect of overall economic efficiency is productive efficiency. Productive efficiency occurs when an economy cannot produce more on one good without producing less of another good.

Generally, there are two fundamentally different ways of organizing an economy. Market and Command Economy. A market economy is one in which individuals and private firms make the major decisions about production and consumption. In a market economy, decisions are made in markets, where individuals and enterprises voluntarily agree to exchange goods and services, usually through payments of money. A system of prices, of markets, of profits and losses, of incentives and rewards determines the what (profits), the how (costs) and the form whom (reward for inputs). [Laissez-faire economy] A command economy is one in which the government makes all important decisions about production and distribution. In a command economy, the government owns most of the means of production; it also owns and directs the operations of enterprises in most industries; it is the employer of most workers and tells them how to do their jobs; and it decides how the output of the society is to be divided among ...

Most of the problems of economics emanates from the undeniable truth that human wants are unlimited and means to fulfill those wants are limited and they have alternative uses. So, at the heart of economics is the law of scarcity. If infinite quantities of every good could be produced or if human desires were fully satisfied, what would be the consequences? People would not worry about stretching out their limited incomes because they could have everything they wanted; businesses would not need to fret over the cost of labor; government would not need to struggle over taxes or spending, because nobody would care. In such a case of affluence, there would be no economic goods, that is goods that are scarce or limited in supply. All goods would be free, like sand in the desert or seawater at the beach. But no society has reached a utopia of limitless possibilities. Goods are limited while wants seem limitless. Even in developed countries, production is not high enough to meet everyone’s d...

Economics is the study of how society utilizes its limited resources to produce the most valuable and useful commodities and distribute them among different people. The key points are that resources are limited and human wants are unlimited. If the resources are available in plenty, then there would be no problem. Thus, economics is the choice-making and decision-making behavior of people. Therefore, the essence of economics is to acknowledge the reality of scarcity and then figure out how to organize society in a way that produces the most efficient use of resources. The basic purpose of studying economics is to understand how various economies and their components work, how an economy is organized, and how successfully it achieves its basic objectives. The term economics is derived from two Greek words, ‘oikou’ and ‘nomos’, meaning the rule or law of households. Economics seeks to answer questions relating to the economic behavior of the people, society and the economy. To be brief,...