Last updated on June 13th, 2020 at 08:31 pm
Three Problems of Economic Organizations:
In every economy; economic organizations, irrespective of their type, have to face and solve three problems of economics. These three problems are as follows,
- What commodities are produced & in what quantities.
- How goods are produced.
- For whom goods are produced.
1. What commodities are produced & in what quantities:
A society has various needs and wants. But the resource it has is always limited. So to produce one, it has to leave another. Also, the quantity is a matter. That is, the production of a commodity may low down another commodity’s production. So, it is a problem, that using the limited resources what to produce and in what quantities. The society must have to consider the most obvious needs of its member to produce or to make the best use of the resources.
2. How goods are produced:
How to produce refers to the technique that is necessary to produce the goods in the best way. The best way depends on the production cost, use of resources etc. Each society has to find out ways to produce a commodity in low production cost and resource saving. As the resources are limited, if these are used in much amount to produce a commodity, it will become less to produce another. So the society or the economy will have to find out the best way to produce a commodity which will low down the production cost, will use less resources, electricity, man power etc.
In free economy, the goods are produced by keeping many things in mind. Before going to factory, the demand of the good and the possible amount which may be paid gets the importance. The production cost is also very important. For good business, it is necessary to keep the production cost low. In free economy, by price mechanism, the production of goods is a matter related mainly with the production cost.
3. For whom goods are produced:
For whom to produce is a problem of distribution. No society can produce a commodity as much as its peoples need. So, they will have to find ways to distribute the production. Though they can not satisfy all, but at least they will have to try to distribute. This also has to be noticed, that all kind of goods are not for all. Except the fundamental goods or necessities, other goods get targets to whom they will be distributed.
In mixed economy, the targeted section of society gets some modifications. Here, the government can raise his voice against the production of ones. If a product is for all, then it should have to be for the majority buyers. This is the process at all. But sometimes the production cost of a product gets too higher that the price can not be low down. In that case, the government raises funds from rich by taxation etc and redistributes to the poor by subsidies, welfare payments etc.