Question

The Economic Problem is a fundamental problem of Economics

Write an 800 words essay about this.

Answer 1

The fundamental problem of economics is basically the issue of scarcity. Resources available in the economy are scarce but wants are unlimited. Because of this people would like to consume more than it is possible to produce.

Fundamental questions in economics are

1. What to produce?

2. How to produce?

3. For whom to produce?

The question what to produce can be divided further into two sub question. First question is which goods are to be produced and which not and second question is in what quantities these goods must be produced. If the productive resources were unlimited then we could produce any good we want and any in any number. But we have a constraint. This what to produce and what not question would not arise beacuse resources available are scarce in mature so we must choose among different alternatives of goods and services that need to ne produced. Further if a society decides to produce a particular good in larger quantities then it would have to withdraw resources from production of other goods. Further it must also be decided that how much resources should be allocated for the production of comsumer goods and capital goods. This problems are to be faced deciding what to produce.

Now we discuss about how to produce problem. It means which combination of resources is to be used for production of goods and which technology is to be made use in production. Once an economy decided what needs to be produced and in what quantities then we must decide how these gooda nd services must be produced. Among the different alternative methods which method must be used for the production. Different method or technique of production would use different quantites of resources.  

Further we discuss for whom these goods must be produced. Because the resourced and output of the goods are limited so we must decide for whom to produce. For whom to produce means how the national productbis to be distributed among the members of the society. Thus it is the problem of sharing the national product. It depends on the distribution of national income. Those people who have larger income would have larger capacity to buy goods and hence will get greater share of goods and service. Those having low levels of income have less purchasing power to buy things. The more equal is the distribution of income more equal will be the distribution of national product.  

Apart from these three fundamental problems there are further two problems of an economy which are of utmost importance. They are the problems of efficiency and growth of the economy. Since the resources are scarce it is desirable that it must be used efficiently. So production and distribution of national product must be efficient. Production is efficient if it is not possible to produce one good without reducing the output of other good. Similarly distribution is efficient if it is not possible to make any person better off without making any other person worse off.

Furthermore it is also important to know that whether the productive capacity of the economy is increasing, static or declining . Increase in the productive capacity of the economy overtime is called economic growth. So for any economy efficiency and growth both are important.