XI Economics

Chapter 3
 Economic Problem:
 Scarcity is the fundamental problem of every society
 Reason: None of us can have all that we want
 Limited amount of human and non-human
resources
 It’s not possible for any economy to produce every
type of good in an unlimited quantity
 Hence, every economy has to take the basic decision
of making best use of its available resources in
producing goods and services.
 The Law of Scarcity
 Unlimited Wants
 Multiply over time
 Many wants recurring
 Wants differ in their urgency
 Limited Resources
 Productive resources – scarce
 Labour – by size of population
 Land – by area of the country
 Capital & technology – scarcity of various inputs
 Alternative Uses of Resources
 The available resources should be
allocated among different uses in
such a way that resources are put to
their best possible use.
 What is true of an individual is also
true of an economy. Every economy,
 Capitalist or socialist
 Developed or underdeveloped
 What to produce and how much to
produce?
 How to produce?
 For whom to produce?
 Problems of fuller utilization of
resources.
 Problem of efficiency in utilization of
resources.
 Problem of economic growth
Possibilities Butter Guns Marginal Opp.
(Million kg) (Thousands) Cost of Butter
(Thousand of
Guns)
A 0 15 -
B 1 14 1
C 2 12 2
D 3 9 3
E 4 5 4
F 5 0 5
 The amount of resources is
fixed
 Unchanged techniques
 Full employment of resources
 Resources are not equally
efficient in the production of all
commodities
It slopes downwards
to right
It is concave from the
origin
 Problem of Scarcity
 Problem of Choice
 Problem of What to Produce
 Problem of Full and Efficient
utilization of the resources
 Problem of Economic Growth
 It is generally defined as the process
whereby real per capita income of a
country increases over a long period of
time
 Focus three things,
1. Rise in PCI
2. Rise in PCI in real terms
3. Long period
 Traditionally, economic development
has been defined as a sustained increase
in real per capita income. (1960s and
1970s)
 The process whereby the real PCI of a
country increases over a long period of
time, along with reduction of poverty,
inequality and unemployment.
 Growth Development
Narrow Concept Comprehensive
More O/P Composition of O/P,
Allocation of Resources
Rise in Income Also reduction of
poverty, inequality of
income and employment
Defined strictly in terms But also, non-economic
of economic indicator, indicators like literacy,
i.e., income health services, etc.
 Growth Development
Quantitative Also Qualitative
Easier to realise More extensive. Involves
a whole lot of changes in
the society
Developed countries Developing countries
Less government Demands active
intervention required involvement of the
government
 Prof. W. W. Rostow
1. Traditional Society
2. Pre-take off stage
3. Take-off stage
4. Drive to Maturity
5. The age of high mass-
consumption
 Absence of modern science and
technology
 Low output and productivity
 Primitive methods of production
 Sufficient to meet the basic
consumption needs
 No saving or investment
 Agriculture is the mainstay
 Transitional era – pre-conditions for
sustained growth are created
 Aspiring for a higher standard of living
 Changes occur in values, social attitude
and expectations
 Education and entrepreneurship spreads
 Technological revolution in agriculture
 Expansion of trade (internal & external)
 Process of economic growth starts
which becomes self sustained (without
govt. action)
 Initiated by a sharp stimulus
 Large increase in the rate of saving and
investment – high rate of growth of o/p
 Essential part – development of one or
more leading sectors in the economy.
 Goal of high level of per capita o/p
 Period of high, long sustained
economic growth
 Effective application of modern
technology in all the sectors
 Rate of investment is well high over
10 % of national income
 Final stage of economic growth
 PCI becomes very high, leading to high
standard of living
 Extensive use of durable consumers’
goods and household gadgets
 Balance of attention of the society is
shifted from problems of production to
problems of consumption.