JOIN VISHNU ECONOMICS SCHOOL
µ
Meaning and Causes of
Economic Problems
The economic problems are the problem of choice,
which arise due to unlimited wants, limited resources and alternative use of
resources.
Causes of Economic
Problem:
1. Unlimited Wants: Human wants are unlimited and these wants changes
day by day. No one can fulfil all the
wants. If one want is satisfied, A new want will arise.
2. Limited
Resources: Resources are scarce, it means the supply of
resources is less than their demand.
3. Alternative
Use: One resource can be used to fulfil differently
want, so the problem of choice will arise that which want should be fulfilled
first.
Features of the
resources:
1. Scarcity
2. Alternative
uses
µ Central Problems
Basic
economics problems of an economy are called Central Problem.
Types of Central
Problems
1.
What to produce?
This central problem is the first central problems of allocation
of resources related to selection on goods and services. This problem has two
aspects.
a.) What
goods and services are to be produced?
An economy has to decide whether capital goods (plant,
machinery) are to be produced or consumer goods (wheat, rice) are to be
produced. Similarly, the economy has to make a choice between Normal goods (sweets,
AC) & War goods (bomb).
b) How much
quantity of these goods are to be produced?
After deciding what goods are to be produced, and economy
has to decide how much quantities of these goods are to be produced because
resources are limited, more consumer goods mean less of capital goods. For
example, if the economy produces more machines, resources become limited to
produce wheat.
2.
How to produce?
This the central problem is the second central problems of allocation of resources
related to the choice of the technique of production. There are two types of
techniques: Capital intensive & Labour intensive technique.
a.)
Capital Intensive: Capital-intensive the technique is the technique in which capital is used more than labour. For e.g.
– Making clothes by machine.
b.)
Labour Intensive: Labour Intensive technique
is the technique in which labour is used more than capital. For e.g. – Making cloth by handloom.
An economy has to decide which techniques are to be used for production because
resources are scarce. For e.g. – In India, the availability of labour is more
than capital. Therefore, India will prefer labour intensive technique.
3.
For whom to produce?
This the central problem is the third central problems of allocation of resources. This
problem is related to the distribution of income among different persons. Production
is the combined efforts of factors of production namely land, labour, capital
and enterprise.
An economy has to decide how much income should be distributed amongst factor as
rent for land, wages for labour, interest for capital and profit for the enterprise.
The economy will produce goods for those persons who have the purchasing power
to buy goods. Purchasing power depends upon how much income is distributed
among different factors. so ultimately this problem is related to the problems
of distribution of income.
It
has two aspects:
Personal
Distribution: Personal Distribution means the distribution of
income among different people.
Functional
Distribution:
Functional Distribution means the distribution
of income among different factors.
