Central Problems of an Economy

There are 3 kinds of Central Problems –

1. ALLOCATION OF RESOURCES – Here it is to be decided how to distribute the available resources of a country in the production of different commodities for a desired level of output. This problem is divided into 3 imp. Categories-

  • What to produce??
    • Here it is to be decided what type of commodities are to be produces & in what quantity.
    • There are different types of commodities like consumer goods, producer goods, defence goods etc.
  • How to produce??
    This problem is related with the selection of technique of production. There are 2 types of techniques of production
    • Capital intensive technique of Production(More units of capital & less labour)
    • Labour intensive technique of Production(More Labour & less units of Capital)
  • For whom to produce??
    This problem is related with the distribution of goods among different sections of society & among diff factors of production.
    There are two types of distribution
    • Personal distribution- It is related with the distribution of goods & services among different sections of society.
    • Functional Distribution- It is related with the distribution of output or national income among the different factors of Production.

2. FULLER UTILIZATION – This problem is associated with how to make full use or efficient utilization of the available resources of a country. It is important that resources

  • should not remain idle
  • There is no wastage of able resources of a country.

So, every country always makes efforts to make best possible use of the renewal resources

3. GROWTH – Growth of resources means how to increase the productive capacity of a country. It is possible in two ways- to make use of Advanced Technology to increase the stock of existing resources of a country.

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