ECONOMIC PROBLEM- SCARCITY AND CHOICE Prepared by Dr. Ranjit Basumatary HOD Assistant Professor Department of Economics Bengtol College Economic problem is basically the problem of making choices in the use of scarce resources for
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ECONOMIC PROBLEM- SCARCITY AND CHOICE
Prepared by
Dr. Ranjit Basumatary
HOD &Assistant Professor
Department of Economics
Bengtol College<br>
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Economic problem is basically the problem of making choices in the use of scarce resources for satisfaction of unlimited wants.
In the words of Prof. Eric Roll, “Economic problem is essentially a problem arising from the necessity of choice, choice of manner in which limited resources with the alternative uses are disposed off. It is a problem of using of resources”.
Scarcity of resources- By scarcity of resources, we mean shortage of goods and services in relation to their demand.
Due to the scarcity of resources and resources have alternative uses, every economy are confronted with the problem of choice.
It is the problem related to the allocation of resources to alternative uses, briefly called the problem of resource allocation. It has three variants, these are-
1. What to produce?
2. How to produce?
3. For whom to produce?
These are popularly known as central problems of an economy. What is economic problem?<br>
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Every economy has to face problems relating to choice among alternative uses of resources which are known as “central or basic problems of an economy”. These problems are common to all economies and societies and hence sometimes are called economic problems. These Central problems of an economy are discussed below-
1. What to produce?
The problem ‘What to Produce’ can be divided into two related questions.
Which goods are to be produced and which not? Resources are in fact scarce relative to human wants, an economy must choose among different alternative collections of goods and services that it should produce.
In what quantities those goods, which the economy has decided to produce are to be produced? “An economy has to decide how much resources should be allocated for the production of consumer goods and how much for capital goods”. Central Problems of an Economy<br>
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The problem of ‘How to Produce’ refers which combination of resources is to be used for the production of goods and which technology is to be made use of in production.
There are various alternative methods of producing a good and the economy has to choose among them.
Different methods of technique of production would use different quantities of various resources. The choice between different methods would depend on the factor supply situation and the prices of the factors of production.
Keeping in mind the scarcity and the availability of the resources, those methods of production should be employed that economize as much as possible on the relatively scarce resources. 2. How to produce?<br>
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Once the problem of what and how to produce are solved, the goods are then produced.
Because the resources and resulting output of goods is limited, the third basic economic decision, which must be taken, is ‘For Whom to Produce’.
Who should get how much? The distribution of national income should be done on the basis of the Marxian principle “ from each according to his ability, to each according to his needs”.
Equality seems an option. But the problem is that equality in the distribution of national product or income may adversely affect the incentive to produce more. If this incentive is destroyed or greatly diminished as a result of promoting equality, the total national output available for sharing may be so much smaller that the living standards of all may go down.
Thus it follows that the basic economic problem faced by any society is the allocation of scare resources among competing uses for the satisfaction of unlimited human wants. 3. For whom to produce?<br>
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Scarcity of resources having alternative uses in relation to unlimited human wants gives rise to an economic problem (i.e. problem of choice).
In other words, scarcity and choice go together which means when ever there is question of scarce resources, there arises a problem of choice.
Therefore, an economy has to make a choice among its available resources, in the best possible manner.
Efforts are required to be made to economies limited resources by allocating them in such a way as to produce maximum output to satisfy maximum wants.
What do you mean by problem of economising of resources?
Making best use of the available resources is known as the problem of economising of resources. How does scarcity and choice go together?<br>
