What Are The Central Problems of The Economy?
I noticed some posts regarding the central problems of the economy. So, I thought I should also explain this. Thanks to Facebook group members, who are so supportive and full of ideas. Okay, let’s start.
Central means ‘core issues’ or ‘the main problem’ which each country’s economy faces, irrespective of their development level. Central problems are different from Economic problems because economic problems mainly arise due to human wants (which, as we know are never-ending, but the resources are limited to fulfill those wants).
Let’s have a look at the ‘Central Problems of The Economy’.
Central Problems of The Economy
Every economy in the world faces the following central or main problems for which they take the most appropriate decision:
- What to produce and in What quantity? Every economy has to decide which commodities or goods they should produce. For example, whether the economy should produce luxury goods, which will be expensive and only richer section of the economy will be able to purchase it; or they should focus on producing normal goods which will be affordable to a middle-income section of the economy, or they can produce inferior goods which the weaker section of the economy will be able to purchase. This depends on which section is comprising of a higher proportion of the economy.
- How to produce? This problem is related to the ‘technique of production‘. We have two techniques of production: Capital intensive technique, where more machines are used as compared to the labors. The second technique of production is Labor intensive technique, where more labors are used as compared to the machines. So, the economies which have stronger technologies and better machines to work with might prefer to adopt capital intensive techniques. Similarly, the economies which have weaker and outdated systems and have a huge population, they might prefer labor-intensive techniques to provide more employment opportunities for them.
- For Whom to produce? This will depend on the consumer’s ability to purchase goods and services. Those economies where the consumer’s ability to purchase is high, they can manage to produce luxurious goods, whereas economies which are weak and have poor affordability from consumers end may focus on producing inferior goods.
To summarize, Central problems are faced by all the nations and every nation manages to provide solutions according to there development level and purchasing power of the population. They must decide to produce based on whether they are more technologically enabled or labor-intensive.