The document outlines 5 basic economic problems: (1) what and how much to produce, (2) how to produce goods, (3) who the goods are produced for, (4) how efficiently resources are used, and (5) whether the economy is growing. It uses production possibility curves to illustrate tradeoffs between consumer and capital goods production and how economic growth allows for increased production of both through technological advances.

1. BASIC ECONOMIC PROBLEMS
What to Produce and in what Quantities ?
How to Produce these Goods ?
For whom are the goods produced ?
How efficiently are the Resources being
utilized ?
Is the Economy Growing ?

2. What to Produce and in what
Quantities ?
• Since the resources of the economy are scarce, the nature of the goods
and quantities to be decided on the basis of priorities
(e.g) if community wants to produce more of war equipment, they have to
sacrifice the some quantity of civilian goods like rice, wheat, butter, cloth
etc.,
• If the society gives more priority in the production of consumer goods
now, it will have less in the future and vice versa.,
• If some goods are produced in larger quantities , some other goods must
be produced in smaller quantities.
• Both goods are essential for an economy. Thus decision should made to
make suitable adjustment between the two.
• Suitable policy should be adopted so that goods can be produced
according to their demand

3. continuation
• X axis reflects consumer goods (food beverages,
clothing, shoes, furniture household appliances etc)
• Y axis reflects capital goods (equipment, vehicles and
tools)
• R reflects inefficiency of the economic system
• K reflects outside the current production possibility of
the society
• B reflects society decides to have more of
capital goods
• D reflects society decides to have more of
consumer goods

5. How to Produce these Goods ?
• It is primarily dependent upon the availability of resources within the
economy
• It also deals with methods of production
• (e.g) If labour is abundance- labour intensive technology.
• If labour is scarce - capital intensive technology
• The technique to be used depends upon the type and quantity of goods
• For producing capital goods andin large quantities –complicated and
expensive machines and sophisticated technology to be use
• Simple consumer goods and small quantities of output – less expensive
and simple technique
• What are the goods to be produced by the public sector and what are the
goods to be produced by the private sector
• Ultimately those methods should be adopted which brings about efficient
allocation of resources and increase the overall productivity in the
economy

6. • This also depends upon the location of production unit.
• The best place for the production unit depends upon the minimum amount of
cost incurred for procurement of raw materials, transportation cost, selling cost
and other costs etc
• ( e.g) cloth mills should be set up where raw cotton in available at cheap rate

7. an economy is producing
certain qts of both consumer
and capital goods
A
By adopting new tech , PP0
Shift outwards to P1P1,
C
leads to production of more
quantities of consumer goods
and capital goods
point A on PP0 moves to C on
PP1
If tech are used in the prodn of
consumer goods only an
economy move from A to B
B

8. For whom are the goods produced ?
• It deals with the allocation of goods among the members of the society
• Goods may be necessaries, luxuries and comforts
• It means whoever possesses the means to buy the goods can have them
• Allocation of these goods depends upon distribution of National Income
• Rich person have more money and wants to have more quantities of Luxury
goods
• Poor may have less money and wants to have more quantities of the basic
consumer goods
• PP1 shows the combination of luxuries and necessaries.
• B – shows more of luxury commodities and less of necessary commodities is
being produced
• D – more of necessary goods and less of luxury goods is being produced

9. Contin..,
• The economy is faced with the problem concerning the distribution of
national product
• The division of society as capitalists and workers are made on the ground
that the interest of these two sections clash with each other.
• One group out of the two get more only at the cost of other.
• Major portion of the national income goes in the pockets of rich person
where the workers paid less than their marginal productivity
• This leads to the inequalities of income in the economy

11. How efficiently are the Resources being utilized ?
• It is important that the resources are used in an efficient manner
• Society must see that whether the resources it owns are being utilised
fully or not.
• if the resources of an economy are lying idle, it has to find the ways and
means to utilize them fully.
• If the idleness of the resources say land, labour, raw materials, machinery
and equipment is due to their mal-adjustment, the society has to adopt
monetary or fiscal measures

13. Is the Economy Growing ?
• Economic growth is the process of continuous expansion of the economy
over a long period
• Production possibility curve remains constant due to lack of changes in
techniques of production
• If there is improvement in the techniques of production and innovation,
there will be more inputs of productive factors like labour and capital.
• The production possibility curve shift to the right that signifies expansion
of productive capacity or economic growth

14. EXPLANATION
original production possibility curve where the economy produces both
consumer goods and capital goods
 The outward shifting of production possibility curve from PP
 Leads the economy shifting from A to B or C or D
 C combination reflects large quantities of both consumer and capital goods
produced in an economy
PP
PP1
It is clear that economic growth enable the economy to have more
of both the goods .
Thus production possibility curve can provide the expansion of
productive capacity or the long term steady state growth in the
economy

16. conclusion
• All the central problems of an economy are interrelated and
interdependent
• The fundamental economic problems arises due to scarcity of resources
and the choices
• The economic tool Production possibility curve can provide explanation of
vital economic decisions that every society has to make
• Price mechanisms can provide solution to these problems