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January 16, 2018 

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CARDINAL UTILITY: A measure of utility, or satisfaction derived from the consumption of goods and services, that can be measured using an absolute scale. Cardinal utility exists if the utility derived from consumption is measurable in the same way that other physical characteristics--height and weight--are measured using a scale that is comparable between people. There is little or no evidence to suggest that such measurement is possible and is not even needed for modern consumer demand theory and indifference curve analysis. Cardinal utility, however, is often employed as a convenient teaching device for discussing such concepts as marginal utility and utility maximization.

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RESOURCE ALLOCATION:

The process of distributing resources for the production of goods and services which are then distributed for the satisfaction of wants and needs and human consumption. This is also commonly referred to by the single word "allocation." The resource allocation process is an essential part of an economy's effort to address the problem of scarcity
Given that world is rampant with scarcity (unlimited wants and needs, but limited resources), not every want and need can be satisfied with available resources. Choices have to be made. Some wants and needs are satisfied, some are not. These choices, these decisions are the resource allocation process.

Efficiency

An efficient resource allocation exists if society has achieved the highest possible level of satisfaction of wants and needs from the available resources AND resources cannot be allocated differently to achieve any greater satisfaction.

Three Questions

This whole resource allocation process is frequently viewed as answering three key questions:
  • What goods and services are produced with the available resources?

  • How are available resources combined in the production of goods and services?

  • For Whom are the goods and services produced?

Markets and Governments

Resource allocation is accomplished through both voluntary market exchanges and involuntary government-imposed actions. Markets accomplish the process using prices, which create incentives for both producers and consumers. Governments address this process using regulations, taxes, and spending, which also create incentives among members of society.

Both methods are necessary in a modern economy. Many resource allocation decisions are best made through markets, but some resource allocation decisions are better addressed using the coercive powers of government.

<= RESERVE REQUIREMENTSRESOURCE MARKETS =>


Recommended Citation:

RESOURCE ALLOCATION, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: January 16, 2018].


Check Out These Related Terms...

     | allocation | distributution standards |


Or For A Little Background...

     | three questions of allocation | What? | How? | For Whom? | scarcity | efficiency | equity | economic goals | opportunity cost | satisfaction | value | mixed economy |


And For Further Study...

     | division of labor | economic thinking | factors of production | government functions | incentive | inefficient | invisible hand | property rights | fifth rule of imperfection | consumer sovereignty | production possibilities | utility maximization | profit maximization |


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