Economic Problems
Economy problem arises because of two fundamental factors. They are (1) human wants are unlimited and (2) means to satisfy our wants are limited. Let us discuss these two basic propositions.
Unlimited Wants:
Desire for a good is human want. Human wants are unlimited. That means our desire for goods and services known no limit. If one want is satisfied, the other crops up in its place. If that satisfied, another comes in its place and so on. Therefore it is said that man in a bundle of wants. Nobody is satisfied with what he gets. He needs and desires more. What is true to an individual is also true to the economy as a whole. A nation has countless wants – defence, law and order, education, health care, sanitation, transport, communication, agriculture, industry etc. Thus wants are Unlimited, be it an individual or a society. Can we satisfy all these wants.
Limited resources (Scarcity):
Resources at our disposal to satisfy our wants are limited or scare. The resources may be money, time, energy, human or natural resources. Scarcity of resources implies that their supply is very much limited in relation to demand. Here the problem crops up. The problem is: can we satisfy unlimited wants with our limited means ? Can we produce all the goods and services that we need for the satisfaction of our wants ? No, not at all. The scarcity of resources stands on the way. Therefore the economy has to decide how to use and adjust the limited resources in the best possible manner so as to derive maximum satisfaction. Had the resources been unlimited, we could produce all that we want. We could produce them in any quantity. There would not have been any economic problems. But that was not to be.
Alternative Use (Choice):
The resources at our disposal have another important characteristic, viz. they are capable of alternative uses. Land can be used for the growth of corn or vegetables or oilseeds or sugarcane. It can be used for construction of houses or factory buildings and which is not. Here the problem of choice crops up. Choose the urgent wants wants and postpone the less urgent and unimportant wants. An economy, therefore has to make a rational choice of wants and means.
The ‘scarcity’ and choice are the two basic characteristic of any economy in the world, be it capitalist, socialist or mixed economy. Every economy has to decide how to use the limited productive resources at its disposal to satisfy the maximum possible wants. This is known as the basic problem of an economy. Every economy has to face the following basic problems. These are also called the central problems of an economy.
