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Resource transfers

In order to maximize society's happiness, we must free up resources which are in lower valued uses and allow them to go to higher valued uses.

1)Explain and elaborate on this concept.
2)How can this concept be applied to the activities of profit making companies and profit loosing companies or to the revenue and costs components of a firm's net profit?
3)Does this mean every activity that loses money decreases society's happiness, and any activity that makes money increases society's happiness?
4) How can this concept be applied to the "welfare gains from trade" concept in international trade ?

Need detailed explanations/write-up please.. thanks !

Solution Preview

Because resources are limited, they need to be carefully allocated. If we use them inefficiently, we reduce our ability to provide for everyone's needs and wants. How we value the different uses can be difficult, because it is a normative judgement. We must infer some kind of subjective criteria. We generally put food for hungry children before such things as vacations and luxury cars. But that is really a moral judgment the the majority subscribe to in this culture. In a different culture, other things may be valued.

When a company is losing money, it is a signal from the market that the goods its producing aren't worth what it costs to make them. This is a method of redistributing raw ...

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