What does ‘resource allocation’ refer to?

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BlackTom AI · Accepted Answer

The question asks us to identify what the term 'resource allocation' refers to in an economic context.
Option a: 'A non-price determinant of demand for resources' — This is inaccurate because resource allocation is about distributing scarce resources for production, not about determinants of demand for resources themselves. Determinants of demand would involve factors that influence how much resources buyers want to hire, not the mechanism by which the resources are allocated.
Option b: 'A type of behavioural nudge designed to ensure an efficient use of scarce resources' — While behavioral nudges can influence efficiency, resource allocation as a concept is broader and foundational, not a specific nudge or technique. Describing it as a behavioural nudge narrows its scope incorrectly.
Option c: 'The way in which scarce resources are allocated towards production of goods and services' — This statement captures the core meaning: decisions about who gets what resources (land, labor, capital, entrepreneurship) and how they are used to produce goods and services, typically within markets, planning, or mixed systems. It reflects the allocation process that underpins production possibilities and economic efficiency.
Option d: 'The way in which we move along the production possibilities frontier' — The movement along the production possibilities frontier (PPF) represents trade-offs between two goods given a fixed set of resources, not the broader concept of how scarce resources are allocated to production. While related, this option describes a consequence or illustration of resource use rather than the definition of resource allocation itself.
In summary, option c aligns with the standard definition of resource allocation as the mechanism by which scarce factors of production are distributed to produce goods and services, whereas the other options mischaracterize or narrowly frame the idea.

MUF0061 Economics Unit 1 - Semester 2, 2025 Resource Allocation in a Market Economy- Video and Quiz (10 - 12 minutes)

What does ‘resource allocation’ refer to?

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