Central problems of an economy class 11 notes are presented in a very comprehensive and thorough manner for better understanding of the students. They are helpful and reader-friendly as they give the students access to easy and simple readings.
- Central problems of an economy
- Allocation of resources
- Central problems of an economy, Problem 1- what to produce
- Central problems of an economy, Problem 2- How to produce
- Central problems of an economy, Problem 3- For whom to produce
Central Problems of an Economy
Production, distribution and disposition of goods and services are the basic economic activities of life. In the course of these activities, every society has to face scarcity of resources. Due to scarcity, every society has to decide how to allocate scarce resources. If one looks at the question “What are the central problems of an economy”, they are as under:-
- What to produce
- How to produce
- For whom to produce
These problems are called central problems because these are the most basic problems of an economy and all other problems revolve around them.
Allocation of resources
Allocation of resources refers to the problem of assigning the scarce resources in such a manner , so that maximum wants of the society are fulfilled. As resources are limited in relation to the unlimited wants, it is important to economize their use and utilize them in the most efficient manner.
The problem of allocation of resources is studied under 3 heads:-
(i) What to produce
(ii) How to produce
(iii) For whom to produce
Central problems of an Economy – Problem 1 – What to produce?
This problem involves selection of goods and services to be produced and the quantity to be produced of each selected commodity.
Every economy has limited resources and thus cannot produce all the goods. More of one good or service usually means less of others.
For example, production of more sugar is possible of other goods. Production of more war goods is possible only by reducing the production of civil goods. So, on the basis of the importance of various goods, an economy has to decide which goods should be produced and in what quantities. This is a problem of allocation of resources among different goods.
The problem of “What to produce” has two aspects.
(i) What possible commodities to produce : Central problems of an economy class 11 notes explains that An economy has to decide, which consumer goods (rice, wheat, clothes etc.) and which of the capital goods (machinery, equipment etc.) are to be produced. In the same way, the economy has to make a choice between civil goods (bread, butter etc.) and war goods (guns, tanks etc).
(ii) How much to produce:- After deciding the goods to be produced, the economy has to decide regarding the quantity to be produced, of consumer and capital goods, civil and war goods and so on.
Central problems of an Economy – Problem 2 – How to produce ?
This problem refers to the selection of technique to be used for production of goods and services. A good can be produced using different techniques of production. By ‘technique’ we mean which particular combination of inputs to be used.
Generally, techniques are classified as are
- Labour-intensive techniques (LIT)
- Capital-intensive techniques (CIT)
In Labour Intensive technique, more labour and less capital (in the form of machines etc.) is used.
In the Capital Intensive technique, there is more capital and less labour utilization. For example, textiles can be produced either with a lot of labour and a little capital or with less labour and more capital. The availability of factors and their relative prices helps in determining the technique to be used. The selection of technique is made with a view to achieve the objective of raising the standard of living of people and to provide employment to everyone.
For example, in India, LIT is preferred due to abundance of labour, whereas countries like USA, England etc. prefer CIT due to shortage of labour and abundance of capital.
Problem 3 – For whom to produce ?
The problem of “Whom to Produce” as a Central Problem of the Economy, refers to selection of the category of people who will ultimately consume the goods i.e. whether to produce goods for the poor or for the rich. Since resources are scarce in every economy, no society can satisfy all the wants of its people. Thus a problem of choice arises. Goods are produced for those people who have the paying capacity. The capacity of people to pay for goods depends upon their level of income. It means this problem is concerned with distribution of income among the factors of production (land, labour, capital and enterprise), who contribute to the production process. The problem can be categorized under two main heads:-
(i) Personal distribution:- It means how the national income of an economy is distributed among different groups of people.
(ii) Functional distribution: – It involves deciding the share of different factors of production in the total national product of the country.
Central problems of an economy class 11 notes are good for students as they ask questions, summarize key points, analyse, and connect to the concepts, and to other sources as well. These notes help you read analytically and critically. They also provide distance from sources, making it a useful strategy to avoid plagiarism.