Let us assume that you are given an assignment topic in economics that you are the chief economist for a benevolent dictatorship.
You need to allocate all of the resources in the economy. We will provide you with whatever information you ask for. On the basis of that information, you should tell to each person that how much to work on every day, and at what job. You need to decide how much of every intermediate and final good to be produced. You take a decision of what combination of inputs to use to produce each good. You must decide that how much of each final good to give to each person for consumption. When you make all these millions of decisions, these all need to satisfy the rule of economic efficiency: Each person in the economy is as well off as he or she could probably be without making someone else worse off. This means, when you are finished with all your allocations, there is no re-allocation possible that could improve the happiness of one person while leaving all others happiness unchanged or improved.
(This efficiency criterion is known as Pareto optimality, named after Italian economist Vilfredo Pareto, who expressed this concept in 1906. It is a just a condition for efficiency, but it has nothing to relate about equity or fairness.)
You as in the role of chief economist for a benevolent dictatorship find your task overwhelming. Allocating resources among millions of different uses to produce an efficient and effective result seems to be an immensely complicated task.
So the learning from this part of the course is that when property rights are clearly told and markets are competitive, then the resource allocation takes place is on the basis of decentralized individual decisions that attain Pareto optimality. If as a chief economist for a benevolent dictatorship you were given complete information about skills, technology, and individual preferences, then also you could not devise a better allocation than what will be get from the market. So, economists view markets as a significant decentralized process for processing information and allocating resources.
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