Class 12 Economics Notes for CENTRAL PROBLEMS OF AN ECONOMY
Welcome back students, today in our note based educational series will be discuss on some Economics notes based on the pattern of CBSE Class 12 Economics. These ‘Economics Notes‘ are related to the central problems that an economy may face. Use the following information to frame your answers and score extraordinary marks in your examinations. These “Economics notes” are short, crisp and easy to understand for all.
CENTRAL PROBLEMS OF AN ECONOMY
Every economy of the world, whether developed, developing or underdeveloped, is facing Economic Problems. An economic problem is basically the problem of choice in the use of scarce resources for satisfaction of unlimited human wants. It has to pick within its limited resources, what it needs to produce that gives maximum satisfaction to its people. The economic problem arises because
- Human wants are unlimited
- Resources are limited
- Resources have alternative uses
Simply but, choice problem is the central problem of an economy. Scarcity of resources having alternative uses in relation to demand gives rise to the problem of choice-called central problem. Every economy has to decide how much resources are to be used in production of different goods and services. Thus, allocation of resources is the fundamental problem. Allocation of resources is concerned with:
- What to produce
- How to produce
- For whom to produce
WHAT TO PRODUCE – CENTRAL PROBLEMS OF AN ECONOMY
It is the problem of choosing which commodities should be produced and in what quantities. An economy has to choose from various kinds of goods which can be consumed viz. consumer, producer, civilian or war goods. It has to make a choice not only in the production of kinds of goods but also in the quantities in which they are to be produced.
HOW TO PRODUCE – CENTRAL PROBLEMS OF AN ECONOMY
It deals with what technique has to be used in the production of goods and services. A choice can be made between labour intensive technique and capital intensive technique. An economy must opt for that technique which results in the least cost of production.
FOR WHOM TO PRODUCE – CENTRAL PROBLEMS OF AN ECONOMY
This is concerned with the distribution of income among its various factors of production. This problem refers to selection of the category of people who will ultimately consume the goods i.e whether the economy will produce goods for more poor and less rich or for less poor and more rich. Since no economy can satisfy all wants of its people, problem of choice arises.
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