CENTRAL PROBLEMS OF AN ECONOMY

In every economy there are three central problems:
-          What to produce?
-          How to produce?
-          For whom to produce?

1)      What to Produce? – Human wants are unlimited but resources to satisfy those wants are scarce. So, we have to decide which wants are to be taken on priority .It involves two fold decisions:
i) The economy has to decide what goods and services are to be produced.
ii) When economy has taken the decision as to what goods or services are to be produced, then it has to decide about its quantity.

2)      How to Produce? – How to produce means how to organize production. This problem is concerned with the choice of technique of production. Generally, there are two technique of production
i) Labour Intensive Technique- Under this technique, labour is used more than capital.
ii) Capital Intensive Technique- Under this technique, capital is used more than labour.
The efficient technique is that where cost of production is minimum.

3)      For Whom to Produce?- This is the problem of distribution of final goods and services or problem of distribution of production. The value of production is same as value of income. Thus, the problem of distribution of production means problem of distribution of income. This problem has two aspects.
i) Personal Distribution- How should production be distributed among different individuals and households in society?
ii) Functional Distribution- How should output be distributed among different factors of production?

Extended Version of the Central Problems
-          How to achieve fuller utilization or full employment of resources?
-          How to achieve growth of resources?


Comments

Post a Comment

Popular posts from this blog

Image
COMMERCIAL BANK The organized banking system in India is divided into two categories- 1) Central Bank (Reserve Bank of India) 2) Commercial Banks Commercial Banks accepts deposits for the purpose of lending. The difference between lending and borrowing rates of interest is profit of the bank. The lending rate of interest is kept higher than the rate of interest on borrowings. According to Indian Banking Companies Act , “ Banking company is one which transacts the business of banking which means the accepting for the purpose of lending or investment of deposits of money from the public repayable on demand or otherwise and withdrawals by cheque, draft, order or otherwise.” Functions of Commercial Banks 1)       Accepting of Deposits- The basic function of commercial bank is to accept deposits from the public. There are different types of accounts to attract public. i) Fixed or Time Deposit Account- In this type of account, amount is acc...
Read more
MICROECONOMICS Introduction The term 'Micro' in English language means 'small'. Therefore, Micro economics study the economic problems at the level of an individual (an individual firm, an individual household, or an individual consumer. Definition According to Professor Boulding, “ Microeconomics is the study of particular firm, particular household, Individual price, wage , income, industry and particular commodity.” Scope of Microeconomics 1)       Theory of Demand 2)       Theory of Production 3)       Theory of Price Determination 4)       Theory of Factor Pricing Difference between Microeconomics and Macroeconomics Microeconomics Macroeconomics 1) Microeconomics studies economic problems at the individual level 1) Macroeconomics studies economic problems at the level of the economy as a whole. 2...
Read more
Image
CENTRAL BANK The central Bank is the head of the banking system of a country. Central Bank occupies an important place in the monetary and banking system of every country. It is responsible for maintaining the economic stability of a country. In the words of Will Rogers , “There have been three great inventions since the beginning of time: fire, the wheel and the central banking”. The Reserve Bank of India (RBI) is the central bank in India. The Reserve Bank of India was inaugurated in April 1935 under the Reserve Bank of India Act,1934. Definitions Central Bank has one function. It operates to control economy, supply of money and credit. – Samuelson A central bank is a bank which constitutes the apex of the monetary and banking structure of its country. – De Kock Functions of Central Bank 1)       Issuing of Notes- In modern times, central bank alone has the exclusive right to issue notes in every country of the world. 2)  ...
Read more