Basic Economic Problem

The basic point behind the economy is managing the resources of the people who most need them. The economy is the allocation of selected resources to the selected people based on their minimum (at least) needs or requirements to balance demand and supply chain and hence to increase productivity.

1. What to produce?

In any country, people have to plan about the main field in which they want to excel. Their decision would be based on the resources available and skills they have or they can have. Not every business is for everyone. Nations especially if their size is not very large and have very limited resources, have to direct themselves towards a common goal, the higher GDP and balance of trade.

2. How to produce?

People must align their self to produce what they have based on their resources. An agricultural country must have agriculture universities and skilled farmers who know farming from their predecessors.

3. For whom to produce?

What going to be the market for the produced goods and services is another very important question any economy will have to answer. For any products or services, the local market might be the very first option. Production must be aligned to cover the local needs on priority then it can be exported to earn foreign exchange i.e., USD. Weak or no local production of a good that is required in the local market will force the economy to spend on imports. Whoever is the user, products must earn and support the economy to make the use of resources, fruitful.

Scarcity

Finite Resources & Unlimited Wants

The main issue in economics is that any resources available are in limited quantity and will finish one day and the day is not so far.

• In economic terms, the resources that will not last are known as factors of production
• On one hand, we have the limitation of limited resources while on the other hand, we have unlimited human wishes and needs.
• Economics discriminates the wishes and needs and allocates resources accordingly.
• Wishes or wants are something that can be put on hold in case of any issue in demand and supply but the needs are needs.
• Humans cannot survive without them and an economy will be a failed economy if it is not even able to fulfil the basic needs of people.
• Needs are like food, clothing and housing where they can live a respectable life whereas wishes or wants are the items beyond needs like having a car instead of public transport, a house of your own, luxury clothes etc.

All associate in an Economy confront the main Economic issue

Consumers

• Availability, size of resources and market demand define the prices in a free market.
• Low supply and low demand: Stable and relatively high prices
• Large supply and low demand: Unstable and cheap prices
• Large supply and high demand: Stable and relatively high prices
• Low supply but high demand: Unstable and highest prices

Producers

• Prices from the production side are defined by the fact that the product is made from a resource that is scarce or quite abundant
• Prices will be set higher for the product made from sources that are scarce to meet the higher cost
• If the product is made from a resource that is easily and widely available then the price will be reasonable (at a minimum level if demand is low)

Workers

• Almost every worker wants higher wages at minimum work with a most comfortable environment
• Owners or employers on the other hand might not have all such required resources
• It’s a trade-off between employee and employer to do work and to get work respectively while balancing the resources at an acceptable level

Government

• The government can have several roles in the demand and supply chain.
• Sometimes government have to intervein to correct market problems i.e., availability of resources, hoarding and higher demands due to fake speculations
• The government can put itself in and can run public institutions to provide goods or services
• It can also allow private bodies to do business
• A government can also opt to run a public-private partnership

Economic & Free Goods

• Economic goods

  • Goods become economic goods because they are limited in availability but remain higher in demand
  • Due to this, economic goods remain valuable
  • Producers and manufacturers take every single chance to make a profit through those goods, which makes sense
  • All products or goods that are not free will be classified as economic goods.
  • Oil, gold, rice, cars, and electricity are some of many examples of economic goods/products

• Free goods

  • All nearly unlimited goods will be considered free goods.
  • As clear from the name, free goods will be available freely
  • Based on their immense availability, no producer or supplier will be able to earn through it except in fewer cases of value addition like air to breathe underwater e.g.
  • Drinking water has remained free all the time in history except in some wells in deserts.
  • Now due to various issues like polluted water and hence the very high demand for clean water to drink.
  • Sunlight, air, ocean water sand etc.

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