Allocation of Resources scarcity and choice economic problem

The economic problem arises because wants are unlimited and factors of production with alternative uses are limited. These factors of production are used to satisfy the unlimited wants for goods and services. This lead to the problem of choice, the problem of choice may be classified into three broad categories.

1.       What to produce and in what quantities?

2.       How to produce? And

3.       For whom to produce?

A part from these basic problems, three more problems have been pointed out. These are.

1.       How to achieve the level of full employment?

2.       How to achieve efficiency in utilization of resources?

3.       How to achieve maximum possible rate of economic growth?

Let us study these problems in detail

What to produce and in what quantities?

Since the factors of production are relatively scare, therefore, it is not possible for economy to produce unlimited quantity to all the goods and services required. Thus a choice between the goods and services those are to be dropped, have to be made. An economy having majority of the poor persons, will have to decide whether to produce more of essentials or only essentials. Similarly a country has to decide has much of its resources should go into the production of consumer goods and now much resources for the production of consumer goods and now much resources for the production of produced goods and goods for civilian use. In short, an economy is faced with the choice regarding the size and composition of production of its goods and services.

How to produce?

Choosing efficient techniques of production can produce the goods and services. Since the resources are limited, therefore it is essential to employ these resources is such a way to that maximum production of goods and services can be obtained. This implies that every economy should choose efficient methods of production. What is an efficient method of production is essentially dependent upon the availability of different types of resources in an economy. For example, for an economy having relatively more of capital than labor an efficient technique of production would be the one, which uses more capital than labor. On the other hand, a technique employing more labor than capital would be more efficient for an economy which is capital scare (e.g. Bangladesh). Since a commodity can be produced in more than one ways, an economy should choose that technique which uses more of the relatively abundant factor of production and less of the relatively scare factor. In this way a commodity can be produced at the minimum lost of production because the relatively abundant factor is used in a greater proportion than the relatively scare factor. Since relatively abundant factor would be demanded less. A part of its supply would remain unitized.

Whom to produce?

A Third related central problem is who is to enjoy the benefits of the nation's goods and services. In other words, this problem is related to the distribution of the produced national output among the members of the society. Since the economy cannot all the commodities to meet all the needs of every citizen of the society, the society has to decide about the distribution of limited production capacity of the economy.

If we consider a unit of money as a vote in favor of a commodity then obviously rich would be able to influence the production in there favor. Since money incomes of the people are derived either from work or from property therefore it is essential to know the distribution of money income to distribution of national output is thus inter-linked with the problem of distribution of incomes.

How to achieve full employment?

As me know that resources are scare in relation to demand. Therefore it is essential for us to use all the resources available in the economy. But in all the times, during the period of cyclic fluctuations level of employment changes, it declines when the economy is in the phase of depression, unemployment is an economic as well as a social problem. Therefore, whatever might be the economic system; realization of full employment is considered a desirable objective.

How to obtain efficiency in use of resources?

The problem of efficiency in use of resources is a problem faced by all economics. Therefore there is need to distribute resources efficiently among different productive uses. The distribution of resources is considered inefficient if transfer of resources from one industry to another industry does not cause a fall in production from where resources have been withdrawn which the industry where the resources are being used experiences a rise in production.

How to accelerate the rate of economic growth?

It is one of efficiency in use of resources is a problem faced by all economics. Therefore there is need to distribute resources efficiency among different productive uses. The distribution of resources is considered inefficient if transfer of resources from one industry to another industry does not cause a fall in production from where resources have been withdrawn while the industry where the resources are being used experiences a rise in production.

How to accelerate the rate of economic growth?

It is one of major objectives of developing world. This world cannot accelerate the rate of growth due to the presence of various obstacles. How to overcome this problem is a subject matter of growth economics.