Basic Problems of an Economy
Index
Basic Problems
Economic Problem
Definition
- What to produce?- How to produce?- Whom to produce?_ Problem of fuller utilisation of resources.- Utilisation of resources - Problem of economic growth
Scarcity
Definition
Why does Economic problem arise.
Production Possibility Curve
- Unlimited Wants- Limited Resources - Alternative Uses
India's Population
Total
1.4 billion
+40%
+100
Human Wants
Resources
Economic Scarcity
PROBLEM OF CHOICE
Economic Problem is the problem regarding allocation of limited resources for the production of alternative goods and services.
Economic problem
The law of scarcity states that goods ate scarce because there are not enough resources to produce all the goods that people want to consume.
LAW OF SCARCITY
Resources have alternative uses
Limited Resources
Unlimited Wants
Why does Economic Problem Arise?
Wants are Unlimited and keep on multiplying with time
01
02
Wants are recurring
unlimited wants
03
Wants differ in urgency
04
Due to diff wants, we always tend to choose.
LIMITED RESOURCES
fop's
step 1
Needed to produce goods and services are limited.
Exploitation of natural resources
Duis autem vel eum iriure dolor in hendrerit in
Insufficient amount of FOP's available to produce
Demand for goods has increased.
+info
RESOURCES HAVE ALTERNATIVE USES
ONE RESOURCE
MULTIPLE USES
A PIECE OF LAND
COULD BE USED FOR WHEAT, VEGETABLES
LIMITED RESOURCES
ALTERNATIVE USES
HAS TO CHOOSE BETWEEN ALTERNATING USES OF RESOURCES
Society's role
UNLIMITED WANTS
LIMITED RESOURCES
PROBLEM OF CHOICE
SOLUTION
ECONOMISING RESOURCES: Available resources should be allocated among different uses in such a way that resources are put to their best possible use.
BASIC OR CENTRAL PROBLEMS OF AN ECONOMY
WHAT TO PRODUCE?
How much quantity will be produced?
What Commodities shall be produced?
Problem of Choice occurs.
Resources are scarce
Problem of resource allocation.
Should we produce guns or butter or chicken?
Society cannot produce all that is demanded
More shirts or machinery?
Also decide the amount of each goods.
Demand is the deciding factor.
HOW TO PRODUCE?
05
05
04
03
05
01
02
Problem of choice
Different economies have different types of production techniques based on the resources availableEg. Gulf Countries rich in OIl
Variours Alternative methods are available
Be economical in using resources
Solution
Capital Intensive
Labour Intensive
Techniques depend on what type of products are needed and also the level of technical knowledge in the economy.
Which technique to use for production?What combinations of labour and capital to use?
Uses more of labour and less of capital
Uses more of capital than labour
Labour intensive and Capital intensive
FOR WHOM TO PRODUCE?
WHO SHALL GET THE GOODS PRODUCED? HOW IS THE NATIONAL PRODUCT DISTRIBUTED?
DISTRIBUTION OF INCOME DETERMINES DISTRIBUTION OF GOODS AND SERVICES.
GOODS WOULD BE GIVEN TO THEM WHO HAVE MONEY.
WHAT TO PRODUCE?
- The problem of scarcity necessitates making choices about what goods and services to produce.
- Every economy has limited resources and unlimited wants, leading to trade-offs and the concept of opportunity cost.
- Societies prioritize their production decisions based on their needs, wants, and the available resources.
- Factors influencing the decision include consumer demand, market trends, societal preferences, and the availability of resources.
HOW TO PRODUCE?
- Once the decision of what to produce is made, economies need to determine how to produce those goods and services.
- Production methods and techniques vary based on factors such as resource availability, technology, and efficiency.
- Different production methods have different costs, time requirements, and environmental impacts.
- Economies strive to choose the most suitable production methods to optimize resource utilization and achieve desired levels of efficiency.
HOW TO PRODUCE?
- The problem of distribution arises once goods and services are produced.
- Distribution involves determining how the produced goods and services are allocated among individuals or groups in society.
- Factors influencing distribution include income, wealth, social factors, and government policies.
- Distribution can occur through market-based mechanisms (based on prices and purchasing power) or through government intervention to ensure fairness and address inequalities.
Problem of Fuller utilisation of resources
Sufficient amount of resources are not available. Problem of employment and unemployment exists. Not to leave the resources idle.Available resources should be utilised no matter what.
Problem of EFFICIENT USE of resources
Avoiding wastage of resources.Use the economy's resources in the most efficient way to satisfy demand. Put the resources to best possible use. Minimum input === Maximum Output If masons do the work of carpenters or vice versa; the output shall not be maximised.
Problem of ECONOMIC GROWTH
How to increase the capacity of the economy to produce goods? If the productivity increases --- production will also increase --- high standard of living More resources means more production. All economies want to increase the resources available with them for economic growth.
Production Possibility Curve
A PPC is the curve which shows various combinations of two goods that can be produced with available techniques and with given amount of resources.
Assumptions of PPC
1. The amount of productive resources are fixed. 2. No change in technology. 3. All productive resources are fully emplpoyed. 4. Resources are not equally efficient meaning resources transferred from one good to another increase the cost of production. 5. It only assumes combination of two goods.
Production Possibility Schedule
Features of ppc
Imagine a country where resources are unlimited. Would the basic problems of what to produce, how to produce, and for whom to produce still exist? Discuss the implications of unlimited resources on economic decision-making.
THE PROBLEM OF SCARCITY
All the combinations outside the PPC are unattainable as resources are not sufficient to produce them. Points on or inside the PPC are attainable as they can be produced with available resources.
PROBLEM OF CHOICE
PROBLEM OF WHAT TO PRODUCE
PROBLEM OF FULL AND EFFICIENT UTILISATION OF RESOURCES
If resources are fully employed --- production will happen on the PPC curve. But if the economy chooses to produce inside the curve --- resources available in the economy are not fully utilised. Point A = Inefficient utilisation of resources.Points B, D and C = Proper utilisation of resourcesX = Not attainable
PROBLEM OF ECONOMIC GROWTH
ECONOMIC GROWTH leads to increased availability of resources and technological development. Therefore, capacity of the economy to produce goods and services increases. This shifts the PPC curve outwards.
Basic Problems of an Economy
Utkarsha Mathure
Created on July 4, 2023
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Transcript
Basic Problems of an Economy
Index
Basic Problems
Economic Problem
Definition
- What to produce?- How to produce?- Whom to produce?_ Problem of fuller utilisation of resources.- Utilisation of resources - Problem of economic growth
Scarcity
Definition
Why does Economic problem arise.
Production Possibility Curve
- Unlimited Wants- Limited Resources - Alternative Uses
India's Population
Total
1.4 billion
+40%
+100
Human Wants
Resources
Economic Scarcity
PROBLEM OF CHOICE
Economic Problem is the problem regarding allocation of limited resources for the production of alternative goods and services.
Economic problem
The law of scarcity states that goods ate scarce because there are not enough resources to produce all the goods that people want to consume.
LAW OF SCARCITY
Resources have alternative uses
Limited Resources
Unlimited Wants
Why does Economic Problem Arise?
Wants are Unlimited and keep on multiplying with time
01
02
Wants are recurring
unlimited wants
03
Wants differ in urgency
04
Due to diff wants, we always tend to choose.
LIMITED RESOURCES
fop's
step 1
Needed to produce goods and services are limited.
Exploitation of natural resources
Duis autem vel eum iriure dolor in hendrerit in
Insufficient amount of FOP's available to produce
Demand for goods has increased.
+info
RESOURCES HAVE ALTERNATIVE USES
ONE RESOURCE
MULTIPLE USES
A PIECE OF LAND
COULD BE USED FOR WHEAT, VEGETABLES
LIMITED RESOURCES
ALTERNATIVE USES
HAS TO CHOOSE BETWEEN ALTERNATING USES OF RESOURCES
Society's role
UNLIMITED WANTS
LIMITED RESOURCES
PROBLEM OF CHOICE
SOLUTION
ECONOMISING RESOURCES: Available resources should be allocated among different uses in such a way that resources are put to their best possible use.
BASIC OR CENTRAL PROBLEMS OF AN ECONOMY
WHAT TO PRODUCE?
How much quantity will be produced?
What Commodities shall be produced?
Problem of Choice occurs.
Resources are scarce
Problem of resource allocation.
Should we produce guns or butter or chicken?
Society cannot produce all that is demanded
More shirts or machinery?
Also decide the amount of each goods.
Demand is the deciding factor.
HOW TO PRODUCE?
05
05
04
03
05
01
02
Problem of choice
Different economies have different types of production techniques based on the resources availableEg. Gulf Countries rich in OIl
Variours Alternative methods are available
Be economical in using resources
Solution
Capital Intensive
Labour Intensive
Techniques depend on what type of products are needed and also the level of technical knowledge in the economy.
Which technique to use for production?What combinations of labour and capital to use?
Uses more of labour and less of capital
Uses more of capital than labour
Labour intensive and Capital intensive
FOR WHOM TO PRODUCE?
WHO SHALL GET THE GOODS PRODUCED? HOW IS THE NATIONAL PRODUCT DISTRIBUTED?
DISTRIBUTION OF INCOME DETERMINES DISTRIBUTION OF GOODS AND SERVICES.
GOODS WOULD BE GIVEN TO THEM WHO HAVE MONEY.
WHAT TO PRODUCE?
HOW TO PRODUCE?
HOW TO PRODUCE?
Problem of Fuller utilisation of resources
Sufficient amount of resources are not available. Problem of employment and unemployment exists. Not to leave the resources idle.Available resources should be utilised no matter what.
Problem of EFFICIENT USE of resources
Avoiding wastage of resources.Use the economy's resources in the most efficient way to satisfy demand. Put the resources to best possible use. Minimum input === Maximum Output If masons do the work of carpenters or vice versa; the output shall not be maximised.
Problem of ECONOMIC GROWTH
How to increase the capacity of the economy to produce goods? If the productivity increases --- production will also increase --- high standard of living More resources means more production. All economies want to increase the resources available with them for economic growth.
Production Possibility Curve
A PPC is the curve which shows various combinations of two goods that can be produced with available techniques and with given amount of resources.
Assumptions of PPC
1. The amount of productive resources are fixed. 2. No change in technology. 3. All productive resources are fully emplpoyed. 4. Resources are not equally efficient meaning resources transferred from one good to another increase the cost of production. 5. It only assumes combination of two goods.
Production Possibility Schedule
Features of ppc
Imagine a country where resources are unlimited. Would the basic problems of what to produce, how to produce, and for whom to produce still exist? Discuss the implications of unlimited resources on economic decision-making.
THE PROBLEM OF SCARCITY
All the combinations outside the PPC are unattainable as resources are not sufficient to produce them. Points on or inside the PPC are attainable as they can be produced with available resources.
PROBLEM OF CHOICE
PROBLEM OF WHAT TO PRODUCE
PROBLEM OF FULL AND EFFICIENT UTILISATION OF RESOURCES
If resources are fully employed --- production will happen on the PPC curve. But if the economy chooses to produce inside the curve --- resources available in the economy are not fully utilised. Point A = Inefficient utilisation of resources.Points B, D and C = Proper utilisation of resourcesX = Not attainable
PROBLEM OF ECONOMIC GROWTH
ECONOMIC GROWTH leads to increased availability of resources and technological development. Therefore, capacity of the economy to produce goods and services increases. This shifts the PPC curve outwards.