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Does allocation of scarce resource mean trading of a perishable goods with the one who needs it most. Say, a drug that can cure cancer and there is only 10 units left. A seller sells the item who pays the highest price and at the earliest. So the resource, have now turned hands. so does this mean an allocation of a resource.

Can someone spill some light by giving some examples to the allocation of scarce resources.

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  • $\begingroup$ Are you asking for the meaning of the word "allocation"? If not, what exactly are you asking for? If yes, English Language & Usage might be a better fit for your question. $\endgroup$
    – Giskard
    Commented Feb 14, 2022 at 6:56

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Scarcity has nothing to do with perishability. See answers in this older Economics.SE question for definitions of scarcity in economics.

In essence any good that is available in limited quantity such that there are some people who would like to have more of it but can't because it's quantity is limited is scarce.

Gold is non-perishable but scarce good.

If some person decides to mine some gold and then the person decides how much to keep for personal use and how much to sell or give away as a gift that would be an example of person allocating scarce resources.

Note resources do not need to change hand, the miner could decide to keep all gold. That is still one possible way of how the scarce resource can be allocated.

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A good is 'scarce' if it is available in a lower amount in comparison with needs. In technical sense, in economics, a good is scarce when it is available in a lower quantity in comparison with the quantity that would be demanded if the price would be zero.

'Scarcity' of a resource has the implication, by definition, that its price is different from zero. If something is limitless available, the price would be zero: no one would pay for something that could have freely without limit, think of air, for instance, nobody pays to breath air ...

'Allocation of scarce resources' means that scarce resources should be distributed among alternative uses. This implies how resources that are not unlimited (that is of economic relevance) are distributed among the economic agents.

How this allocation takes place?

The typical mechanism of resources allocation is the market: markets, through the mechanism of prices, determine the quantity demanded, supplied and finally traded, and therefore finally owned, by agents.

In other kinds of economies, as socialist economies, prices are not settled by the markets, but by the Government. The allocation of resources is so determined by the Government.

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An allocation is typically defined as the division of a finite consumption set among a finite number of agents. An allocation can be "envy-free", for example, if no agent prefers another's allocation to their own. Googling "envy-free cake division" should give you some examples.

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