Economic problem is not only the problem of present distribution but it is also the problem of future growth and distribution of resources. This article throws light mainly on the different aspects of the Economic problem. Economy refers to that system by which people refers earns their livelihood and satisfy their wants. Wants of human beings are unlimited. But it is impossible for an economy to produce everything for each individual; because no economy possesses unlimited resources. The problem concerning the choice of resources is called Economic Problem. It means that the Economy decides how many resources are to be used for the development.
Cause of Economic Problem:
Economic problem arises due to Unlimited wants, Limited or Scarce means and alternative uses. Scarcity is the situation when demand for a good exceeds its supply even at zero prices.
Central Problem of Economy:
Every economy faces some basic economics problems. These problems are also called the central problem of an economy.These problems are indeed the offshoots of the basic problem of resource allocation:
What to produce: Now it is known that human wants are unlimited or scarce. In the face of distribution of resources and consequent problem of choice, we have to decide that which goods and services are to be produced or not. When an economy has taken decision as to what goods or services produced, then it has also to decide about its quality. In fact, producers produce those goods which yield them maximum profit.
How to produce: The second offshoot of the problem of resource distribution is how to produce goods. It actually means how to organize production? This situation is concerned with the choice of technique of production. In India, The Choice of technique involves the choice between labor intensive technology and capital intensive technology. Labour intensive technology ensures greater employment and Capital intensive technology ensures greater efficiency and production. This situation raises conflicts.
For whom to produce: We cannot ignore this. Essentially it is the problem of distribution of final goods and services. In an Economy, value of production is equal to the value of income. Thus, problem of distribution of production implies problem of distribution of income.
Solution of Economic problem:
Capitalist Economy: It is a free economy where producers are free to decide. They take decisions on the basis of price mechanism. Producers will choose to produce those goods which prices are relatively high. They are willing to to produce goods or services for those buyers who are willing to offer them maximum possible price. Because they are interested in maximizing their profits.
Socialist Economy: In this economy, decision is taken by some central authority appointed by government. All the decisions are taken with a view to maximizing social welfare.
Mixed Economy: Mixed economy combines the merits and avoids the demerits of Capitalist and socialist economics. The decision is taken on the basis of regulated price mechanism as well as on the basis of Social consideration. In India producers are free to produce cloth and steel to maximize their profits. But post and telegraph services are the monopoly of the government.