2. Responses to the problem of allocation

What is the problem of allocation?

The problem of allocation is a practical application of the dilemma of scarcity. If there are limited supplies of - almost everything - then there is a challenge in how to distribute (allocate) these scarce items fairly.

Governments and individuals are constantly faced with the challenge of how they will respond to this problem of allocation, this problem of who gets what.

As an individual you may be wondering to what good causes to donate money, there are so many deserving charities. Should I help refugees in Syria? Should I help animals that have been abused? Should I donate to cancer research? What you finally decide is how you personally respond to the problem of allocation.

Governments face this problem all the time. The town budget allows for the repaving of only a limited number of streets this year. Which streets will the town authorities choose to be resurfaced this year?

The science of Economics should be able to help both individuals and governments to decide the difficult challenge of how to allocate resources because this question is at the foundation of what economics is:

  • Economics is the study of allocating limited resources to satisfy unlimited wants.

The tension at the root of economics is that people always want more resources than are available. Such a tension means that there will have to be tradeoffs, or compromises, among competing goals. The analysis can be carried out:

  • at the micro, or individual level or at the level of an individual business
  • at the macro, or aggregate level (which could be the government, or the technology sector, or some other sector of the economy).