Causes behind the arising economic problems
Unlimited wants –
The main problem behind arising economic problems is our unlimited wants. The population keeps on multiplying with time along with their wants. Hence, there is an unlimited desire for humans which keeps on recurring. For example, our hunger should be satisfied after having a meal but after a few hours, we again need something to eat. Let us understand the difference between Need VS Desire. And why we should keep our desires in check. Therefore, to satisfy this extra need, supply has to be increased. There’s a difference between need and desire which depends on individual’s preference scale.
To satisfy the demands of humans, we need resources manufacturing of the product. Every economy is supplied with a specific amount of resources like human resources, natural resources, capital resources etc. These are also known as ‘factor of production’. Productive resources like these are themselves deficit in nature. With time, the supply of the resources have increased but the demand has always outpaced supply. Labors are limited due to the size of the population, the land is limited by the geographical boundary of the country, capital and technology are limited due to the deficiency of various inputs or lack of knowledge.
Resources have Alternate uses
Every available resource has alternate uses, which means, one thing can be used for several purposes. For example, there’s a piece of land and it can be used for three purposes that are, agriculture, commercial, and residential. Now, the economy will decide the purpose for using the land as the availability of resources are less and alternative uses are many. Therefore, the sagacious use of the resource will be made.
Three Central Problems every Economy is exposed to are:
- What to produce?
- How to produce?
- For whom to produce?
There are three more problems which are of equal importance:
- Fuller utilization of the resource
- Efficient utilization of the resource
- Economic growth
- Let us understand the problems in brief:
What to produce?
As we discussed earlier, there are uncountable desires of individuals in an economy and resources are limited as well as have alternate uses too. Therefore, it becomes a difficult task in deciding what to produce. For example, every economy must first decide the production of consumer goods like food, car, television etc. and capital goods like machinery, tool, plant etc.
Production of consumer goods will lead to depletion of resources while capital goods help in the formation of resources. In any economy, production depends on the demand of the product and availability of the product.
How to produce?
This problem includes the decision of technique by which the production has to be done. There are two techniques of production-
Capital intensive method- Here, more of financial and real capital is required.
Labour intensive method– Here, the production makes more use of labor.
The decision of technique must be made on the basis of the cost applied to the production and the efficient utilization of resources.
The problem arises because each technique has its own advantage and disadvantage like in capital intensive technique, the quality, and quantity of the products are increased while the employment decreases. On the other hand, in the labor-intensive method of production, the employment increases but the quantity is decreased
For whom to produce?
The problem of this relates to the target group of customers. There are two aspects of this.
Fuller utilization of resources
This includes the problem of utilization. There should be the fuller utilization of the resources. As there is already the scarcity of the resources, therefore, making the best use out of the available resource can lead to better development and help in facing the demand.
It deals with the GDP of a country. National income of any economy can be increased by increasing the productions and seeing that there is right proportion of consumer goods and capital goods. The decision regarding the production depends on the availability of the resource, demand in the market and efficiency of the resource.
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