Basic Economics Problems of Every Society SS1 Economics Lesson Note

Every economy, whether capitalist, socialist,  mixed economy, developed or developing countries is faced with the basic problem of scarcity of resources which serves as the bane of the following problems confronting the nations of the world.

1. What to produce?
2. How to produce?
3. For whom to produce?
4. How to achieve effective use of resources?

1. WHAT TO PRODUCE

This is the foremost basic economic problem which is concerned with goods and services to be produced and in commercial quantity is the production to be made. As a problem of resource allocation, what should be produced should depend on the needs and wants of the people which are determined by different factors in different societies.

In a capitalist system, what to produce rests in the hands of private individuals and firms who produce goods and services using the price system to determine the price. 

The government determines what to produce in a socialist system based on the calculation of social welfare. 

That is, it is based on the maximization of the welfare of the society as against profit making. In a mixed economy as practised here in Nigeria what to produce is a joint responsibility of the government and private sector individuals.

2. HOW TO PRODUCE

The problem of how to produce is concerned with what economic method of production is to be carried out. This includes the determination of materials to be used as well as techniques of production and those to organize the production.

Two main methods of production exist in every economy and they are:

1. Labor-intensive method
2. Capital-intensive method

The labor-intensive method employs more people with less capital, while the capital-intensive method employs more capital equipment with fewer people. In a capitalist economy, private individuals and private resources are mainly used while in a socialist economy, the government uses public resources.

  3. FOR WHOM TO PRODUCE

This is the problem of the distribution of goods and services among the people. The economic system of the country determines to a large extent the goods and services to be enjoyed. In the capitalist system, the price mechanism determines who gets what goods and services, but in a socialist system the government, through a centrally planned committee, distributes goods and services according to the needs and individual contributions as determined by the government. 

Both the price mechanism and government decide the distribution of goods and services in a mixed economy system.

EFFECTIVE ALLOCATION OF RESOURCES 

Resources have to be efficiently utilized since they are limited relative to the demand for them. It becomes a problem of how this resource can be effectively used to maximize output (Increase in production).  When we have maximized outputs with minimum inputs then we can say that available resources have been effectively and efficiently utilized.

ASSIGNMENT 

1. Explain how the following basic economic problems are solved in a free market economy.

i. What to produce?

ii. How to produce?

iii. For whom to produce?

2. List and explain the goals of the society.

3. What are the factors that determine what to produce, and how to produce?

4. Every economic system is faced with some fundamental economic problems, explain this statement.

5. List and explain five types of wealth.
6. Which of the following is not a fundamental economic problem? (a) What to produce? (b) Method of production? (c) For whom to produce? (d) How to enjoy production?

7. Scarcity refers to (a) The absence of goods in the market (b) Period of production (c) Limited resources (d) The control of resources

8. The consumer has to choose because wants are (a) Limited while means are unlimited (b) Limited and means are also limited (c) Unlimited while means are limited (d) Unlimited and means are also Unlimited

9. The concept of Economic efficiency primarily implies (a) Producing without waste (b) Obtaining the lowest possible cost (c) Conserving our petroleum resources (d) Equity in the distribution of the nation’s wealth.

10. Economic problem arises because (a) Man is insatiable (b) Money is scarce (c) Resources are scarce relative to wants (d) Man engages in so many economic activities