Basic economics problems
Basic economics problems
Because of scarcity of resources producers are forced to choose how to allocate the scarce resources. In doing this, the producers are faced with 3 fundamental problems which they must answer.
What to produce:
Because of limited resources, the answer to this question means that certain goods must be produced, and others left out e.g. should rice for home consumption be produced or rubber for export? This means that every economy meets to decide on what goods and services to produce and in what quantity. The output produced should meet the taste of the people (citizen)
How to produce and where to produce:
The producer must decide what method of production to be used and the area or place to carry out the production e.g. should the method of production be labor intensive or capital intensive? In all the best option is to choose the method and location whereby cost will be minimized.
When to produce:
In answering this question, the producer decides the time where he must produce so that people will demand his product. E.g. should he produce more ice cream in the dry season or raining season?
Should more umbrellas be produced during the raining season or dry season.
For whom to produce:
This refers to how the output should be disturbed among individuals and family e.g. should the output be distributed equally?
Should everyone receive according to what he can pay.
