Question

2) Explain in your own words the Economic Calculation Problem. How would you use the insights of the Economic Calculation Problem to understand an event that you have observed in your life, an event from the news, or an event in your life?

Answer 1

Economic Calculation Problem is a criticism of focus on the process of economic planning rather than leaving the market to the demand-supply dynamics. The criticism is that by planning, the resources are allocated in an inefficient manner as the planning process is riddled with bias and does not understand the market dynamics. Hence, there is unequal distribution of resources, labour and products.
E.g of an event in my life that relates to Economic Calculation Problem - The govt. primary school near by house has 200 students, mostly from poor families. An NGO came to distribute school bags to those students whose fathers work in unorganized sectors. This was the criteria they had come up with. But, at the end 5 students were deprived of the bags because their father had passed away. The decision criteria hadn’t factored-in children raised by single-mothers. This is a classic case of bad planning and rigid criteria. It would have been best had the NGO directly interacted with the students to understand their background and decided accordingly. That would have served the purpose well.