Economic problem of economy Scarcity and Choice

Economic problem refers to problem relating to wealth or means of production or resources, due to the scarcity of which man has to face many difficulties. All economic problems are the result of two fundamental economic facts. First is, that human wants for goods and services are unlimited. Since wants are unlimited, therefore, it is very difficult to satisfy all our wants. As soon as our one want is satisfied another want takes the place of it and so on. The second fact is that means of production or factors of production are scarce. With these scarce factors of production, we cannot produce all goods and services demanded by the people. The word scarcity has a special connotation in economics. It is a relative concept and is linked to the magnitude of the demand. The low of scarcity hold that factors of production are scarce in relation to the demand for the goods and services.

One fact about factors of production is that these factors have different uses. In other words, factors of production can be used for producing different alternative goods. Since a society cannot satisfy all wants with the limited factor of production, therefore it has to find out the ways of limited factor of production, therefore it has to find out the ways of selecting those wants which are to be satisfied. In other words, it raises the problem of choice. If we decide to produce a few more goods in desired quantity, than factors of production must be with drawn from the production of some other goods. This rises the problem what goods and services be produced and in what quantity.

The economic problem can be analyses in three parts

1.       What goods shall be produced and in what quantity?

2.       How shall the different goods be produced that is what production methods shall be employed? And

3.       For whom shall the different goods be produced?

The solution of these problems depends upon the economic system of an economy. In capitalist economy these problem can be solved with the working of price mechanism. On other hand, in socialist countries, these problems can be solved with the working of control agency lice planning commission. In mixed economy central problems of soloed by private & government sectors both.