Maximization, economic efficiency and equilibrium

The postulate of constrained maximization implies that economic efficiency is always achieved by the maximizing individuals because individual will try all constrained means to exhaust at potential gains.

Given the postulate of constrained maximization, an efficient resource allocation represents also a state of equilibrium.

Economic efficiency is always attained. It implies that the world is always efficient if all the relevant constraints are considered.

'Inefficiency' appears only in a partial model where not all constraints that are relevant for attaining efficiency are specified.

Basic Concept

What is Scarcity and Choice?

Scarcity is a situation in which we want more than we have. The good that we want more than we can have is then termed as scarce good. In short, scarcity is a situation where quantity demand for goods is grester than its quantity supplied at zero price.

What is the difference between 'scarcity' and 'shortage'?

Shortage exists when the quantity demanded for a good is greater than the quantity supplied at the same level of price. It will lead to non-price competition such as black market. But scarcity means that the quantity demanded for a good is greater than the quantity supplied at zero price. It implies competition, choice, sacrifice and opportunity cost. It commands a positive price. Even when there is scarcity, shortage may not exist if the price is high enough. If the price of a good is equal or above the equilibrium, there is not shortage but scarcity still exists.