Choice in a World of Scarcity - Essay Example

The law of diminishing returns holds that when an optimum level in the production process is reached, adding additional production factors results in smaller decreases in output, while other factors remain constant. An increase in elements of production results in increases in production up to the optimum level—additional factors of production beyond optimum result to decrease in output. For instance, a firm may choose to employ workers to increase its output in the production process, thereby attaining the optimum production level. The addition of more employees beyond this level will lead to a decrease in the firm's production operations efficiency.

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Government expenditure on significant investment opportunities ensures the stability of a country's economy. To ensure a firm economic base, the government should initiate their financial spending on infrastructure development. Infrastructure involves systems and services such as railway and road networks, water, telecommunication networks, and air control towers, which, which initiate proper functioning of the country's operations (Gramlich pg. 1176). This becomes the best choice and investment alternative for the government to boost its economy using scarce resources.

Massive government spending on infrastructural development initiates faster economic growth. No country develops without investing in its infrastructure sector of the economy. Infrastructural development promotes trade, which raises a greater proportion of an economy's income (Gramlich, pg. 1176). The development of road and railway airline networks support trading activities between countries. The development of ports promotes shipping operations between countries and continents, therefore, building trade networks.

Additionally, water and power systems ensure the smooth running of production operations, thereby enhancing efficiency in the manufacturing and production sector. Infrastructure provides better connectivity and improves efficiency in production, which facilitates economic growth (Jeffrey Stupak). Investing funds on infrastructure development creates an investment multiplier. It boosts the revenues earned by the government, which is used to enhance the productivity and efficiency of operations in other sectors of the economy (Jeffrey Stupak). Therefore, the government should immensely focus on spending its scarce financial resources in investment activities geared towards facilitating the growth of the economy by choosing the right investment alternatives.

Changes should be made on government spending on infrastructure investment. Massive expenditure of funds on multiple investment opportunities in different sectors of the economy by the government attracts more revenue gained from the investment alternatives (Wen Peng, Hsu, and Graeme, pg. 424). The amount of money spent on an investment activity determines the returns it is expected to generate at the end of the process. Therefore, when the government spends more money on infrastructural investment, higher returns on investment are expected from the investment alternative. Spending a few funds on infrastructure development reduces its returns on investment. High returns on infrastructure investment create a revenue source that can then be ploughed back into the economy through re-investment in other sectors. This implies that there is a need for the government to spend more money on infrastructure development to aid in boosting its economic stability and growth. This enables the government to expand its economy due to the availability of adequate or surplus funds needed for diversification of investment strategies such as healthcare, education, and other social services.

The government is entitled to undertake investment operations that are geared towards facilitating the growth of the economy. The choice of the investment alternative is determined by the return on investment and its ability to boost and spur economic growth. An economy only develops when the aspects of infrastructure development are considered; otherwise, economic growth is retarded, therefore losing its competitiveness.

Work cited

Gramlich, Edward M. "Infrastructure investment: A review essay." Journal of Economic Literature 32.3 (1994): 1176-1196.

Jeffrey M. Stupak. "The economic impact of infrastructure investment." Analyst in macroeconomic policy, 2018.

Wen Peng, Hsu, and Graeme Newell. "The significance of infrastructure in Australian investment portfolios." Pacific Rim Property Research Journal 13.4 (2007): 423-450.