University of Malta. Islands and Small States Institute
Abstract
Economics is the study of how scarce resources, including human, physical and
technological capital, are allocated between competing uses towards the production of
goods and services. This typically involves an assessment of supply capabilities and
demand patterns, with prices acting as a signal for resources to move into the most
productive and socially desirable applications. Cases of market failure where prices do
not effectively perform these functions are notorious, arising out of the existence of
external effects and the presence of market imperfections, which may result in an
inefficient allocation of resources and an inequitable distribution of income. These
instances underpin the economic justification for government intervention in the
economy aimed at improving the allocation of resources towards improving social
welfare.peer-reviewe