-Problem of allocation of resourcesThe problem of allocation of resources arises due to the scarcity of resources, and refers to the question of which wants should be satisfied and which should be left unsatisfied. In other words, what to produce and how much to produce. More production of a good implies more resources required for the production of that good, and resources are scarce. These two facts together mean that, if a society decides to increase production of some good, it has to withdraw some resources from the production of other goods. In other words, more production of a desired commodity can be made possible only by reducing the quantity of resources used in the production of other goods. The problem of allocation deals with the question of whether to produce capital goods or consumer goods. If the community decides to produce capital goods, resources must be withdrawn from the production of consumer goods. In the long run, however, [investment] in capital goods augments the production of consumer goods. Thus, both capital and consumer goods are important. The problem is determining the optimal production ratio between the two. In fact, in our societies, resources are scarce and it is important to use them as efficiently as possible. Thus, it is essential to know if the production and distribution of national product made by an economy is maximally efficient. The production becomes efficient only if the productive resources are utilized in such a way that any reallocation does not produce more of one good without reducing the output of any other good. In other words, efficient distribution means that redistributing goods cannot make anyone better off without making someone else worse off. (See Pareto efficiency.) So, scientists will apply efficient distribution methods to help any countries to earn the absolute advantages when we buy and sell any kinds of products or food between ourselves countries, e.g. when US has good natural resource to grow any food, e.g. potato, wheat, vegatable, cotton, then US can export to sell to China, because China has no any farms to grow agriculture food to supply itself Chinese to eat. So, China must need to buy any agriculture food from US. Otherwise, China has cheap labor to supply to US any manufacturers to help them to manufacture their electronic products. SO, it has many US factories are built in China to let Chinese workers help them to produce their products because their wages are cheaper to compare US workers. So, comparative economic advantage will be choice to apply between US and China both countries. ( Absolute advantge trade theory)The inefficiencies of production and distribution exist in all types of economies. The welfare of the people can be increased if these inefficiencies are ruled out. Some cost must be incurred to remove these inefficiencies. If the cost of removing these inefficiencies of production and distribution is more than the gain, then it is not worthwhile to remove them.
