BASIC PROBLEMS OF AN ECONOMY
In this article we're exploring the three basic problem with example. If the resources (natural productive resources, money, time, capital goods and consumer goods, etc.) are unlimited, there would not be the existence of any problem. Since the resources are limited,and we have unlimited wants, because of this the problem of an economy arises.
So, every economic system, be it capitalist, socialist, or mixed, has to deal with this central problems of scarcity of resources relative to wants for them. This is generally called the central economic problem.
Four basic problem of the economy
- What to produce?
- How to produce?
- For whom to produce?
- What provisions are to be made for economic growth? (or how to achieve economic growth?)
1) What to produce?
We know the resources are limited, so every society has to decide which goods and services to produce and how many quantities of each good (or service) should be produced.
A society can produce guns, butter, more capital goods (machines, equipment, dams, etc.), or more non-durable goods (clothes, wheat, ice cream, and one-time use only).In what quantities each of these goods will be produced. So, a society must decide how much wheat, how many schools, how many meters of clothes, etc., have to be produced.
2) How to produce?
This problem of economic organization concerns the choice of technique.
There are two popular techniques to produce goods:
1. Labour-intensive techniques
2. Capital-intensive techniques
The choice would be dependent on the availability of different factors of production, i.e., labor and capital.
The efficiency of society determines which technique of production they will adopt.
Knowledge Point!
Labour-intensive:
This technique of production more depends on the human labor than machinery. It is majorly used in developing countries.
Capital-intensive:
This technique of production more dependent on machinery than humans.it is Developed country.
3) for whom to produce?
Another important decision which a society has to take is 'for whom' it should produced. In every society several categories people exist like poor,rich. Economic should be considered demographic condition, income per capita and other factors. Society cannot satisfy each and every want of all people. Hence, the problem of 'for whom' to produce relates to distribution of income.
4) what provision should be made for economy growth?
Society would not like to use all its scare resources for current consumption only. This is because, if is use all the resources for current consumption and no provision is made for future production the society's production capacity would not increase. income or standard of living of the people would remain stagnant, and in the future, the level of income May actually decline.
All the economics wheather they are capitalist, socialist and mixed economics therefore all the economics faces problem of scarcity.the society have limited resources while the human wants unlimited.
