Since earliest times, the primary function of organized society has been economic in nature. The other elements of civilized society -- architecture, literature, music, etc. Poor societies do not build great pyramids, erect magnificent cathedrals, or place men on the moon. Everyday, all of us are involved in activities that are primarily economic in nature.
The four basic economic problems or central problems faced by an economy are as follows: What to produce 2.
How to produce 3. For whom to produce 4. What Provision if any is made for economic growth? But this choice between war goods and goods for civilian consumption is not the only problem of choice faced by the society. The society has to choose among hundreds of consumer goods themselves and decide about allocation of resources between them.
Of special mention in this regard is the choice between necessities and luxuries. As shall be made clear later, this decision about the allocation of resources between consumer goods and Four basic economic problems goods is of crucial importance from the point of view of economic growth.
More generally, in answering the question what goods shall be produced, society would have to choose somehow or other among scores of goods such as cars, hospitals, schools, houses, radios, televisions, nuclear bombs, wheatrice, cloth, machinery, steel, soap, lipsticks, terylene, nylon, etc.
But this decision is only half the battle. Once society has decided which goods shall be produced, it must then give proper weights to each of the good it selects to produce. Therefore, society must decide how much wheat, how many hospitals, how many schools and how many metres of cloth are to be produced.
In fact, most of the goods in the above list will be decided to be produced. Only the question of what quantity of each of the goods is to be produced would have to be decided. This means with what combination of resources a society decides to produce goods.
For instance, cotton cloth can be produced with either handlooms, or power looms or automatic looms as used in modern textile mills.
Production with technique of handlooms involves the use of more labour relatively to capital and therefore represent a labour-intensive technique. On the other hand, the production of cloth with automatic looms of the modem textile mills involves use of more capital relative to labour and hence represents a capital-intensive technique of production.
Obviously, the choice between different techniques would depend on the available supplies of different factors of production and their relative prices. Scarcity of resources demands that goods should be produced with the most efficient method. For whom to produce? For whom to produce implies how the national product is to be distributed among the members of the society.
Productive resources and the resulting output being scarce, we cannot satisfy all wants of all the people. Therefore, a society has to decide who should get how much from the total output of goods and services.
Obviously, in a free market economy who would get how much of national output depends on his money income. The greater the money income a person enjoys, the greater the amount of goods he would be able to buy from the market.
Therefore, the greater the inequalities in the distribution of money incomes, the greater the inequalities in the distribution of national output. Therefore, this raises the question as to how a free market economy decides about the distribution of money incomes.
Money income can be obtained in two ways. Wages and salaries represent the incomes from work. Differences in wages earned by various people arise due to differences in production activities, skill, education as well as due to the bargaining powers of various social classes and a host of social and institutional factors.
Second, income can be made from property such as land, factories and other forms of capital. Rent, interest and profits are the examples of income from property.
Differences in the ownership of property in a free market economy cause differences in incomes from property. Thus, money incomes of the people made in these ways go to determine the distribution of national output. Therefore, in order to explain the determination of output, we have to explain how distribution of income, that is, wages of labour, rent of land, interest on capital and profits of enterprise arc determined.
How the national income is to be distributed has been a burning topic not only in the field of economics but also in politics. Some have argued with a good deal of justification that all people should get equal incomes and hence equal shares from the national product.
Another important view has been that each individual should get income equal to the contribution he makes to the national production.The four basic economic questions are: what goods to produce, how to use resources in the production process, who receives the finished goods and when to produce the goods.
Answering these four questions is essential for an economy to function properly. The four basic economic questions are: what goods to produce, how to use resources in the production process, who receives the finished goods and when to produce the goods.
Answering these four questions is essential for an economy to function properly. The question of what to produce is one that.
the economic problem and economic systems The economic activity of a society consists of activities related to the production and consumption of goods and services.
Since earliest times, the primary function of organized society has been economic in nature. The four basic economic problems or central problems faced by an economy are as follows: 1.
What to produce 2. How to produce 3.
For whom to produce 4. Essays - largest database of quality sample essays and research papers on Four Basic Economic Problems.
Basic Economic Problems. Any society, regardless of its size, degree of development and political system, tries to solve their the basic economic problems of deciding how to satisfy the unlimited needs of its market through limited Resources.