List of Basic Economic Problems and Their Solution

January 27, 2017 by zkjadoon

Basic Economic Problems

Any society, regardless of its size, degree of development and political system, tries to solve
their the basic economic problems of deciding how to satisfy the unlimited needs of its market
through limited Resources. Below is the list of basic economic problems that must be in your
mind as an entrepreneur.

1. What to produce
2. How to produce
3. For Whom to Produce

List of Basic Economic Problems

These basic economic problems are fundamental and interdependent: what to produce? how to
produce? And for whom to produce? Every society must decide how to allocate its resources
between the different productive activities and how they are going to distribute the goods and
services of consumption between the individuals that compose it.

Well, the mechanism by which a society is organized to address these issues is its economic
system. Consequently, the economic system of a society is the set of relationships and
institutionalized procedures with which it tries to solve the basic economic problem.

What to produce? The answer to the first question indicates in which the productive resources
will be used and how much of the final product will be obtained with these means of
production. This will depend on the needs of the members of society and the resources available,
since the latter are limited and susceptible to alternative uses. This fact raises other questions:
Will more consumer or production goods be consumed? Will the quantity or quality in the
production be the primary factor? Will the production of material goods or the provision of
services increase? Will goods be produced for the internal market or will production be directed
towards the outside?

More from Business Study Notes:- What is Economy

How to produce? This question refers to the organization of production, that who is going to be
in charge of carrying out the productive activity, how this activity is going to be undertaken and
how the productive factors that are available will be combined. All of this implies that society
will ask questions such as whether intensive technologies will be used in machinery or labor,
whether it will be done through private companies or public initiative, what sources of energy
will be used in production or if the productive processes by Those that will be chosen will be
polluting or respectful with the environment.
For whom to produce? Every society should design a system of distribution of goods and
services, which leads to reflect on issues such as: Who will be the target of that production, a few
or the vast majority of citizens? What method or system will be used to distribute the entire
production? Will the distribution of income be equal or will there be very sharp differences
between members of society?

It is very easy to understand that: WHAT, HOW, and for WHOM to produce would not be
problems if the usable resources were unlimited. However, in reality, there are unlimited needs
and limited resources available and manufacturing techniques. Based on these restrictions, the
Economy must choose between the goods to be produced and the technical processes capable of
transforming scarce resources into production.

This factor and the answer to these questions are closely linked to the production management,
the economy and of course the Financial Management, because as seen previously, to produce
you need to invest and to invest you need planning and resources. Therefore, Financial
Management comes to support the economy.
Presenting now a classical division of economics, microeconomics and macroeconomics, it will
be verified that, however great the differences between them, Financial Management is present
and with a high degree of importance.
Generally, microeconomics is conceived as the branch of Economic Science focused on the
study of the behavior of consumer units represented by individuals and / or families (these being
characterized by a single budget), the study of companies, their respective productions and costs,
And the study of the production and prices of the various goods, services and productive factors.

In this way it is distinguished from macroeconomics, because it is interested in the study of

aggregates as the production, consumption and income of the population as a whole.

The bifurcation of Economic Science in these two branches, that is, macroeconomics and
microeconomics, date of 1930. decade of beginnings
Both segments revolve around the problem of limited and finite character of productive
resources in the face of the vital needs of Civilization, infinite and limitless, underlying the
human being, a problem that underlies and justifies the reason for the existence of economics as
a science. However, micro and macroeconomics go as initially noted, for different channels and
can be identified and / or distinguished according to certain parameters.

The criteria adopted for the distinction are, however, fragile, since the understanding of any
economic phenomenon inevitably requires the interrelationship of the theories that are inserted
both within the scope of the micro segment and in the macro branch of Economic
Science. Among these criteria, the first one is based on the level of abstraction-ism
involved. Indeed, as author Robert Y. Awh ponders, microeconomics, in laying down general
principles, is far more abstract than macroeconomics, which is concerned with the examination
of questions and measures peculiar to a given place and instant of time.
Secondly, microeconomics presents a microscopic view of economic phenomena, and
macroeconomics, a telescopic lens, that is, the latter has much larger amplitude, appreciating the
functioning of the economy in its global.