Some economic problems

There are various economic activities like production, distribution, consumption etc. Every economy faces common basic economic problems related to economic activities. 

• Problems:

1. What to produce?

It is a problem regarding selection of goods and services to be produced. Every economy has to decide, whether to produce consumer goods, such as rice, wheat, clothes etc. or capital goods like machinery, equipments etc. Similarly, an economy has to make a choice between necessary goods and luxury goods. Generally, top priority is given to the production of goods and services to mass consumption.

2. How to produce?

This problem is related to the choice of technique used for production of goods and services. Generally, there are two techniques of production viz., labour intensive technique and capital intensive technique. In labour intensive technique, more labour and less machinery is used, e.g. handloom industry whereas, in the capital intensive, there is more use of machinery than labour. e.g. modern textile mills. The choice of technique depends upon availability of factors like machinery, labour, equipments etc. and their relative prices. For e.g. in India, labour intensive technique will be preferred due to abundant population. Every country adopts such a technique of production which leads to maximum utilization of available resources.

3. For whom to produce?

An economic problem mainly arises due to scarcity of resources. It limits the production of goods and services in the economy. It is therefore necessary for every economy to decide 'for whom to produce?' That means, whether to produce for rich or poor people. This problem is related to the distribution of production among the people. The solution of this problem depends upon socio-economic ideology of every economy.

4. How much to produce?

The decision regarding 'How much to produce?' depends upon population growth, availability of resorces and size of market. A country with large population requires more quantity of production. Level of production is determined by availability of resources. Every economy aims to expand its production to maximum level.

5. By whom to produce?

This problem is related to the ownership and control of productive activities in an economy. In a capitalist economy, means of production are owned, controlled and operated by private individuals. In a socialist economy, the entire production is managed and controlled by the government. In a mixed economy, some important industries and services like defence, atomic energy, railway etc. are owned and managed by public sector and rest by private sector.

6. How best are the resources being used?

This problem involves an efficient allocation and proper utilization of resources. An efficient use of resources is very important to achieve the highest possible growth rate. Thus available resources have to be allocated among different productive activities, so as to obtain maximum total output. There may be under utilization or mis-utilization of resources. Under such situations, total output would be less than full capacity. An efficient utilization of available resources helps to solve the basic economic problems.