In the section on the economic problem, we have indicated that the fundamental problem that we as a society face is how to ensure that our scarce resources are used in such a way that the maximum number of needs and wants are satisfied. We have then indicated that this require not only technical efficiency but also allocative efficiency.

In the section on Demand, Supply and Prices, we have shown how we as consumers indicate our willingness to purchase a good or service through our demand for it and how suppliers indicate their willingness to supply a good or service through the supply of it. We then proceeded to show how through the interaction between demand and supply a market equilibrium is established where the price is set at such a level that the quantity demanded is equal to the quantity supplied.

What we do in this section is to indicate that this market equilibrium position is indeed a position where the welfare of both the consumers and the producers are maximised and that at any other price or quantity, society is worse off.