central problems

The Problem of Efficiency

                
                  The Problems of  'what to produce', how to produce' and 'forwhom to produce' lead us to the problem of efficiency. Since whom to produce' lead us to the problem of efficiency. Since resources are scarce, there should be efficiency in production. For the maximisation of walfare, distribution should be efficient.
                       
                Production is efficient when an alternative reallocation of resources cannot increase the production of any good even by one unit. cannot increase the production of any good even  by one unit. Similiarly, distribution is efficient when a reallocation cannot make even person better off  without making others worse off.

                          The problem of Fuller Utilization of Resources

                     Another problem that every economy faces is the problem of fuller utilization of resources. Scarcity of resources is the basic problem. If scarce resources are not fully utilised, it aggravates the problem. Labour remaining unemployed, machinery lying idle and land kept unutilised are instances of under utilization of resources. During recessions and depressions, resources may remain unutilised or under utilised. Economic growth and development requires fuller utilization of  resources.

                         The problem of growth of  Resources

                    We have seen that resources are scarce. But that doesn't mean that they are constant or stagnant. Resources can be made to grow. it is possible to have more labour and more productive labour. Similarly, it is possible to increase the stock of  capital and make capital more productive. Devoloped countries achieved economic devolopment by increasing their resources. In other words, they succeeded in achieving the growth of resources. Developing couuntries should aim at grown of resources, if they are to achiever economic development.

central problems

Central Problems of an Economy   

 All economies face some central problems. We have seen the basic economic problem that arises from a mismatch between unlimited wants and limited resourses. This mismatch gives rise to three central problems faced  by economies. This mismatch gives rise to problem of allocation of resourses. 

 The problem of allocation of resources :- Since wants are unlimeted and resources are limited. it is not possible to satisfy all wants.  further more,  the scarce resources have alternative applicability. Therefore, the resources have alternative applicability. therefore, the resources have to be properly allocated. This involves taking  decisions regarding what to produce and in what quantities, how to produce and for whom to produce.

    (a) What to produce and in what quantities?

    (b) How to produce?

    (c) For whom to produce?   

Important Definitions

      


          Wealth Definition: The first economist who defined Economics was "Adam Smith" who is regarded as the father of  Modern Economics. In his famous book. "An Enquiry into the Nature and Causes of  Wealth of  Nations" (1776). Smith defined economics as 'a science of wealth'.According to Adam smith, Economics is a study of the nature of wealth, its generation and spending.

     Welfare Definition:  A prominent critic was the neo-classical economist Alfred Marshall. Marshall shifted the emphasis from wealth to welfare. In his famous work "principles of  Economics"(1890),  Marshall defined Economics in the following words: "Economics is a study of  mankind in the ordinary  business of life. It examines that part of individual and social action which is most closly connected with the attainment and side a study of wealth: on the other and more important side, a part of the study of man. "The definition came to be known as the welfare definition.

          Scarcity Definition:  the central issue of scarcity of resources in relation to wants was emphasized by Lionel Robbins in his famous book, The Nature and Significance of  Economics Science' (1932) defined Economics in the following words: "Economics is a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses. " This definition came to be known as the scarcity definition.
  

         

               Growth Definition   A widely accepted definition is the Growth definition put forward  by Paul A. samualson. According to samualson, "Economics is a study of  how  men and society choose, with or without the use of  money, to employ scarce productive resources, which could have alternative uses, to produce various commodities over time and distribute them for consumption now and in the future among various people and groups of scociety. "; This definition is  widely accepted because it is  very comprehensive. it encompasses almost all  central concerns of Economics.   

Introduction to economics

    when we begin the study of a new subject. we study different subjects dealing with different issues. physics deals with the phyisical world. Biology studies living things. Similiarly, Economics deals with economy and economic activities. Production, consumption, exchange and distribution are important economic activities undertaken by individuals, households, firms, nations or the entire globe. When a person works, it is economic activity at an individual level. When a household spends money on purchase of  various goods and services, it is expenditure at the household level. Total production and sales of  a company like Tata steel relate to economic activity of a firm.

                                                 

                                                     Economic ideas can be traced to the writings of ancient Greek philosophers like plato and Aristotle. The term Economics is derived from the Greek word "oikonomia" which means household management. The ancient Greeks applied this terms to the management  of a city state, which they called polis. 

                                Economics came to be accepted as a fullfledged social science with the publication  of  "Adamsmith's"  "Wealth of  Nations"  in 1776. Now, Economics regarded as one of  the major and fast growing disciplines in the world.