What Is Economic Problem:

What Is Economic Problem:

n Problems regarding allocation of resources across different uses is called

n According to Robert Awh, “Economic problem is the problem relating

to the necessity of choosing what, how and for whom to produce and how

to achieve economic growth”.

n According to Leftwitch, “Economic problem is concerned with the use

of scarce resources among alternative human wants and in using these

resources towards the end of satisfying wants as fully as possible”.

Causes of Economic Problem:

          1) Unlimited wants

             2) Limited Means

n Free Goods: One has not to pay any price to get these goods and

services. For ex; Air, water, sunshine etc.

nEconomic Goods: One has to pay a price (Scarce means) to get

economic goods and services. For ex; Bread, milk, fruit etc.

The Economic goods are scarce since the resources required to produce them are

also scarce.

These resources are classified into four different categories.

n Land: It refers to all those natural resources which are free gifts of nature and

are used in production process. For Ex; Land, minerals, petroleum, water,

sunshine etc.

nLabour: It refers to all those physical and mental activities which are used in

the production of goods and services. It includes all kinds of services.

n Capital: It refers to manmade means of production, as a result of which there

can be more production includes machines, tools, factories etc.

n Enterprise: It refers to taking of risk and conducting of business as a result

of which it becomes possible to organize production.

An entrepreneur takes risk of his time, labour and capital and is responsible

for production-decisions.

All factors of production i.e. land, labour, capital and enterprise are scarce.Scarcity in the root cause of economic problems. Also, alternative uses of the means result in problem of choice.

Central Economic Problems of an Economic System:

Central Problems à basic economic problems

1) What to produce and how much to produce?

2) How to produce?

3) For whom to produce?

4) How to achieve fuller utilization of resources?

5) How to achieve efficiency in production and distribution?

6) How to achieve economic growth?