4. “THE ECONOMIC PROBLEM… THE
PROBLEM OF WANT AND POVERTY AND
THE ECONOMIC STRUGGLE BETWEEN
CLASSES AND NATIONS, IS NOTHING BUT A
FRIGHTFUL MUDDLE ,A TRANSITORY AND
UNNECESSARY MUDDLE.”
5. The common feature among all economic issues is ‘economic problem ’. It is
economic problem that lies at the root of all the problems of an economy.Human want are
unlimited,but the means which can satisfy these want are limited . The fact of life is that
the total amount of good and service that can be produced by using all the productive
resource of an economy are insufficient to satisfy all the want of the people .Enomoic
problem is the problem regarding allocation of limited resources for the production of
alternative good and services.in other word economic problem is the problem of
choice.Since the resources are scarce and they have alternative uses,there arises the problem
of choice regarding the use of these resources.The law of scarcity states that goods are
scarce because there are not enough resources to produce all the good that people want to
consume.Thus,economic problem is the ‘problem of relative scarcity’and ‘problem of
choice’arising therefrom.In fact ,some economist like Robbin and Samuelson have defined
economics in term of scarcity and choice.
INTRODUCTION
6. WHY DOES ECONOMIC
PROBLEM ARISE?
01.
THE PROBLEM OF CHOICE ARISES BECAUSE
OF THREE INTERRELATED FACT OF LIFE
7. Unlimited want
The first fundamental fact is that
human wants are unlimited to
multiply and they tend to
multiply over time. Good and
services are needed to satisfy
these wants.
Limited
resources
While human wants are unlimited,
resources available to satisfy human
want are unlimited. The resources of
a society consist of land, labour,
capital equipment and
entrepreneurship
Resources have
alternative uses
An important characteristic of
resources is that resources can be
put to alternative uses.The economic
may decided to produce more
amount of some commodities and
less amount of the other
commodities
8. 1 What to Produce =This problem refers to the decisions regarding
the selection of different commodities and the quantities that need
to be produced. Labour, land, machines, capital, equipment, tools and
natural resources are limited. So, it is not possible to fulfil society’s
every demand. Therefore, it is important to decide what goods and
services are required to be produced and in what quantity?
2 How to Produce =This problem is about the choice of techniques
that need to be adopted and used in the production of goods and
services. The two majorly-used techniques are-LIT or Labour
Intensive Techniques. In this technique more units of labor in
proportion to capital are used in the production process .Capital
Intensive Techniques.On the other hand, the Capital Intensive
Technique involves more capital and less utilization of labor.
3 For Whom to Produce =One of the most crucial problems of the
economy is to decide which commodities shall be produced for which
sections of society
BASIC OR CENTRAL PROBLEM OF
ECONOMY
9. 1 Problem of fuller utilization of resources: Every economy has been endowed with
limited resources and the human needs and wants are unlimited. Hence the optimum
management of the resources to its maximum extent is usually not possible. Fuller utilization
of resources can be referred to the efficient as well as full utilization of all the resources in
the production process of the goods and services in an economy so that all the human wants
are mostly satisfy.
2 Problem of Efficient use of resources; it refers to the ways using the available
resources in an efficient way to satisfy the wants of the people. It implies that an economy is
producing efficiently that increase in the production of one good will reduce the production
of another good. Therefore the maximum amount of goods are produced with the available
resources in an economy. And the efficiency in the distribution of goods in a best possible
manner to satisfy the consumer needs. This is known as the problem of how to obtain the
efficiency in the use of resources and distribution of the goods produced in an economy.
3 Problem of economic growth: it is problem of increasing the capacity of economy to
produce more good and service over the year.an increase in productive capacity of economy
will lead to an increased availability of good and service so as to provide a higher standard
of living.
CENTRAL PROBLEM OF ECONOMY
10. It is a curve which show
various combination of two
goods that can be produced
with available technique and
with given amount of
resources
Production Possibility Curve
11. The amount of
productive
esources are
fixed
01.
There is no
change in
technology
02.
All the productive
resources are
fully employed
03.
Resources are not
equally efficient in
the production of all
the goods.
04.
Assumptions of
production
possibility curve
12. 1)THE PRODUCTION POSSIBILITY CURVE SLOPE
DOWNWARD TO RIGHT .A DOWNWARD SLOPING
PRODUCTION POSSIBILITY CURVE INDICATES THAT
THE ECONOMY MUST GIVE UP SOME QUANTITY OF
ONE GOOD TO OBTAIN ADDITIONAL QUANTITY OF
THE OTHER GOOD ,ASSUMING THAT RESOURCES
ARE GIVEN AND THEY ARE FULLY UTILISED IN MOST
EFFICIENT WAY.
2)IT IS CONCAVE FROM THE ORIGIN THE
OPPORTUNITY COST OF A COMMODITY IS THE
QUANTITY OF THE OTHER COMMODITY ,WHICH
NEED TO BE GIVEN UP TO GET ONE UNIT OF IT.
FEATURES OF PRODUCTION
POSSIBILITY CURVE
13. BASIC PROBLEM ON PRODUCTION
POSSIBILITY CURVE
1)THE PRODLEM OF SCARCITY-This is
implied by all those combination of the
two goods which lie outside the production
possibility boundary such as combination
indicated by point K in fig .point outside
the production possibility boundary show
combination that cannot be attained
because sufficient quantity of resources
are not availble to produce them
14. 2) PROBLEM OF FULL AND EFFICIENT UTILISATION OF
RESOURCES
If all the resources are fully and efficiently utilized ,the
production will take place at some point on the production
possibility curve. But if the economy is producing any
combination of good lying inside its production possibility
curve, such as point H it would mean that either some of its
resources are lying ideal or some of resources are used
inefficiently in production
15. As a pointed out above ,a production
possibility curve is drawn on
assumption of given resources and
given technology. Economic growth
result in increased availability of
resources and technological
development
3)PRODUCTION OF ECONOMIC
GROWTH
16.
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26.
27. MIXED ECONOMIC
• A Mixed economyis an economic systemthat
incorporates aspectsof more than one
economic system.This usually means an
economy that contain both private and state
owned enterprisesor that combine element of
the capitalismand socialism
• Most countries fall in this category
• EXAMPLE: India ,Poland etc.
