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Therefore, it has to decide on who gets what share of the total output of goods and services produced. Think about it – can a society satisfy each and every human wants? Certainly not. Basic Problems of an Economy – #3 – For whom to Produce? Usually, a society opts for a technique that optimally utilizes its available resources. Further, the choice depends on the availability of different factors of production and their prices. Similarly, for all goods and/or services, similar decisions are necessary. Hence, society must choose between the techniques to produce the commodity. While handlooms require more labour, automatic looms need higher power and capital investment. For example, you can produce cotton cloth using handlooms, power looms or automatic looms. The production of a good is possible by various methods.
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Browse more Topics under Introduction To Business Economicsīasic Problems of an Economy – #2 – How to Produce? or consumer goods like cell phones, etc.? While it sounds elementary, society must decide the type and quantity of every single good/service to be produced. For example, should we produce more guns or more butter? Do we opt for capital goods like machines, equipment, etc. Further, it also determines the quantity required. What does a society do when the resources are limited? It decides which goods/service it wants to produce. Basic Problems of an Economy – #1 – What to Produce? The Four Basic Problems of an EconomyĪs discussed in the paragraph above, the central economic problem of scarcity of resources is broken down into four basic problems of an economy. In this article, we will look at these basic problems in detail. This central problem gives rise to four basic problems of an economy. However, be it natural productive resources or man-made capital/consumer goods or money or time, scarcity of resources is the central problem. If the resources were unlimited or if a resource only had one single use, then the economic problem would probably not arise. This problem arises because the resources of all types are limited and have alternative uses. If there is a central economic problem that is present across all countries, without any exception, then it is the problem of scarcity.