CENTRAL

PROBLEMS OF
THE ECONOMY
(It’s
a request to everyone to take down all the points
mentioned in the upcoming slides to make the understanding
much easier.)
What is an economy?
An economy is the large set of interrelated production and
consumption activities that aid in determining how scarce
resources are allocated. The production and consumption of
goods and services are used to fulfill the needs of those living
and operating within the economy, which is also referred to as
an economic system.
Problems faced in an economy
Every economy faces 3 fundamental problems because of the resources
being limited and the given wants are unlimited. They are:-
What to produce?
● This is the problem of choice of goods. Every economy must decide what type of
goods are to be produced in what quantity. The production of goods depend on the
strength of the economy.and the required wants and needs of the economy.as all the
resources have competitive usage,the economy has to decide carefully.

example:-

● An economy that is rich and strong could choose to produce luxury goods.
● An economy that is rich in production agricultural goods would produce the same
● An economy that’s strength lies in industrial goods could produce that in limited
quantity
How to produce?
● This is a problem of technique of production. The economy has to decide which technique of
production can be utilized more in their economy. It is based on the kind of economy that the
country follows.

There are 2 techniques of production :-

● labour intensive technique

● Capital intensive technique

The labour intensive technique is when the labour power is more than the capital. It is highly
effective in a country with more population. It increases the employment rate of a country.

The capital intensive technique is when the capital power is more than the labour. If a country is
rich, it can use the capital method. This increases the efficiency of production in the country.
For whom to produce?
● This the problem of distribution.the economy has to decide who should get how
much of the total output of the production of goods and services .
● Every economy has a difference in the person. Diversity to be exact. And every
economy has to decide based on factors like rich and poor,the needs and wants
etc.
● this problem is also concerned with distribution of income among the factors of
production (land, labour, capital and organization), who contribute in the
production process.
 Thank
you!
Feel free to ask any
doubts or questions