Basic Issues of Economics

 

a.      a. What to produce and in What Quantities

The first central issue of an economy is to decide what goods and services are to be produced and in what quantities. This involves allocation of scarce resources in relation to the comparison of the total output in the economy. Since resources are scarce, the society has to decide about the goods to be produced : wheat, cloth, roads, TV, power, buildings and so on. Once the nature of goods to be produced is decided then their quantities are to be decided like How many tons of wheat, how many televisions, how many millions kws of power, how many buildings, etc. Since the resources of the economy are scare, the problem of the nature of goods and their quantities has to be decided on the basis of priorities or preferences of the society. If the society gives priority to the production of more consumer goods then in future there will be less goods and resources. A higher priority on the capital goods means less consumer goods now and more in the future. But resources are scarce, if some goods are purchased in larger quantities, some goods will have to be produced in smaller quantities.

b.    b.  How to produce the Goods

The second problem is how to produce goods and services. This problem is concerned with the choice of technique of production which means more production at least cost. More than one technique can be applied to achieve it. For example:

1.     Labor intensive technique: Under this technique, labor is used more than capital.

2.     Capital Intensive Technique: Under this technique, capital is used more than labor.

 

It is always technically possible to produce a given quantity of wheat with more labor and less capital or with more capital and less of labor. An economy must decide as to  which technique is to be used in a given industry so that efficient production is obtained.

c.      c. For Whom to Produce

The third basic problem to be decided is the allocation or distribution of goods among the members of the society. The allocation of basic consumer goods or necessities and luxuries comforts and among the household takes place on the basis of among the distribution of National income. Whosoever possesses the means to buy the goods may have them. A rich person may have a large share of the luxuries goods and a poor person may have the more quantities of the basic consumer goods he needs.

d.     d. How efficiently are the resources being utilized

This is one of the important basic problems of an economy because having made the three earlier decisions, the society has to see whether the resources it own are being utilized fully or not. In case, the resources of the economy are lying idle, it has to find out the ways and means to utilize fully.