Basic Economic Problems
In every Economic society, people
face to some basic economic problems. Limited
wealth and unlimited want- The presence of problem at the time of bring
parity between these two (Limited wealth and unlimited want) is known as Economic Problems. For Example:
Problems relating to scarcity and choice.
Thus according to scarcity and
choice; Samuelson identified 3 basics or core problems in any society. These
are:
1.
What
to produce
2.
How
to produce and
3.
For
whom to produce
The details illustrations of these
are as bellow:
1.
What to produce
The human wants is unlimited but the
resources to meet this want is limited. So, it is not possible to meet all of
the wants at a same time. For this reason, it is needed to consider the
importance of wants and should determine what product will be produced and how
much will be produced.
In this graph, AB is production
possibility curve. The OX and OY axis of this graph indicates the production of
X and Y products. If all ingredients are used to produce X products then it is
possible to produce only OB amount of product. Again, if all ingredients are
used to produce Y products then it is possible to produce only OA amount of
product. It is possible to produce different combination of X and Y products in
AB production possibility curve. As for example: at point C it is possible to
produce OM amount X and ON amount Y products. And at point C it is possible to
produce OM1 amount X and ON1 amount Y products. If the resources or elements of
production will not be limited, it will be possible to produce at point E
beyond the AB curve. But due to limited resource, it will consider to produce
at any point of AB curve.
So,
what type of products will be employed and how much have to produce with
limited resources is the prime basic economic problem.
2.
How to produce
The second basic problem is how to
produce. For example: a specific amount of product can produce with more land
and less labor or less land and more labor. At this situation, a society has to
select the combination of different type of ingredients will be used. This
problem can illustrate by ISO-Quant (IQ) curve.
In this graph, at IQ curve it is
possible to produce a specific product with the combination of land and labor.
As a paradigm, at A point it is possible to produce a definite product by
combining the OM amount of land and ON amount of labor. At point B, the OM1
amount of land and ON1 amount of labor can produce equal amount of that
product. Now, society’s have to select in which point of IQ curve it is possible
to produce a product with the combination of land and labor. Hence, it is
needed to determine what type of techniques or technology should adopt for
production is also a basic economic problem.
3.
For whom to produce
It is essential to determine how the
produced product will be distributed among the people. Because, the fulfillment
of want is not only depend on production but also depend on fair distribution. It
should need to distribute the produced products among the people from where
maximum welfare of society can gain. So, the determination of how to distribute
the produced product is also a basic economic problem of every society.