Table of contents
1. Meaning Of Basic Economic Problems
2. Factors Which Determine What To Produce
3. How To Produce
4. Factors Which Determine How To Produce
5. For Whom To Produce
6. Factors Which Determine How To Produce For
7. Efficiency Of Resource Use
8. Factors Which Determine Efficient Use Of Resources
Meaning Of Basic Economic Problems
Basic economic problems refers to the problems people Encounter in the society while attempting to satisfy their numerous want with the limited resources available to them. This basic economic problems of the society include what to produce, how to produce, for whom to produce and efficiency of the resources used or efficient use of resources.
Factors Which Determine What To Produce
Factors to be considered in determining what to produce in a society include the following:
1. Consumers Need: The Producers will have to take into consideration the need of the consumers. We have to decide what needs to produce the quantity and quality of goods and services required by the consumers.
2. Market Demand: The demand for a particular set of goods and services by the consumers may encourage producers to produce more of these goods and services. No producer will ever produce what is not demanded in the market.
3. Consumer Income: In deciding what to produce the Producers normally take into consideration the earning of consumers in the society. Producers normally ask themselves this questions are the consumers any enough income to be able to purchase the goods and services at a given price when produced. If else they go ahead and produced but if no they may not produce.
4. Cost Of Production: A producer will go ahead and produce goods and services when the cost of production is low to enable them make some profit. But when cost of production is high in such a way that you cannot make profit he will not produce. Government may decide to take up such production just to provide the goods and services to satisfy the People’s want.
5. Availability Of Resources: When resources for production are available and affordable the producer will be encouraged to produce goods and services. But when the resources are not available there will be no production. since economic resources are scarce or Limited, it follows that the producer may not always have enough of them to produce commodities in abundance to meet the needs of the consumers.
6. Type Of Economy: The type of economic system in a given Society determines the type and quantity of goods and services to be produced. For example in a capitalist economy the price system determines the type and quantity of goods and services that are to be produced as profit is the Major determinant of what to produce Warehouse in a socialist economy the state controls and directs the allocation of resources when it decides what to produce with the sole aim of satisfying the warmth of the whole citizens of the society or state.
How to produce
As soon as what to produce is established another basic economic problem that will arise is how to produce the goods and services.
Factors Which Determine How To Produce
The following factors are to be considered when determining how to produce goods and services:
1. Technique Of Production: This refers to the level of involvement of human Labour and machines. There are two technique of production these are labour-intensive and capital intensive techniques. Labour-intensive techniques employ more Labour and less capital equipment and mentions why the capital-intensive technique employees less labour are more capital equipment and machines.
2. Technological Advancement: The method of production adopted by an individual firm or state depends on the level of technological development of the State. Developing countries usually adopt labour intensive mode of production why developed countries adopt capital-intensive mode of production.
3. Production Functions: This involves any analysis which shows the possible quantity of goods by using each of the given alternatives combination of resources that produces the largest quantity of output at the lowest unit of cost of production. A favorable production function will ensure large production of goods and services to meet the demand of the consumers.
4. Relative Cost Of Factors of Production: The cheaper the directive cost of factors of production example labour capital land the more the production of goods and services to satisfy human want but when the cost of factors of production is high very little production will be attained.
For whom to produce: all goods and services produced must get to the final consumers.
Factors Which Determine Who To Produce For:
Following factors must be considered when determining who to produce for:
1. Satisfaction Of Wants: All goods and services produced either by individuals, firms all government must satisfy the needs or wants of the society.
2. Level Of Income: The higher the level of income of these consumers the more they are able to buy goods and services produced. But if the level of income is low the purchasing power will equally be low and this will lower the rate of production of these goods are services.
3. Type Of Economic System: In the capitalist and mixed economy who gets what depend on the prices of the various products and the amount available to each individual but in a socialist economy the state’s normally introduces a quota system in the distribution of goods and services among the people.
Efficiency Of Resource Use: Efficiency of resource used in the production refers to the optimum used or combination of factors of production to achieve higher and better output at a reasonable cost. Since the resources available in the society and limited relative to demand for them it becomes a wise decision to ensure that this limited resources are efficiently used to produce the desired goods and services.
Factors Which Determine Efficient Use Of Resources:
Factors to be considered in determining efficient use of resources includes:
1. Quality Of Labor: Skilled labour unlike the unskilled labour used in production could contribute to efficient and effective use and allocation of resources in production, reduction of wastage, savings in time and consequently an increase in the quantity and quality of output.
2. Techniques Of Production: The use of capital intensive mode of production which involves the use of machines and equipment may produce more goods, saves time, reduce wastage and consequently be more effective than the use of labour intensive method which may waste time produce less and increase Wastage.