Basic Economic Problems of every society

 1. What goods and services are to be produced 

This involves the allocation of scarce resources in relation to the composition of total output in the economy. 

Since resources are scarce, society has to decide about the goods to be produced: wheat, cloth, roads, television, power, buildings, and so on.

Once the nature of goods to be produced is decided, then their quantities are to be decided too. Since the resources of the economy are scarce, the problem of the nature of goods and their quantities has to be decided on the basis of priorities or preferences of the society.

There are two types of goods that can be produced.

• Capital goods
• Consumer goods

Suppose the economy produces capital goods and consumer goods. In deciding the total output of the economy, the society has to choose the combination of capital goods and consumer goods which is in keeping with its resources.

2. How to Produce these Goods?

The next basic problem of an economy is to decide about the techniques or methods to be used in order to produce the required goods. This problem is primarily dependent on the following 

• The availability of resources within the economy. If the land is scarce, intensive methods of cultivation may be used.  If labour is in abundance, may use labor-intensive techniques; while in the case of labour shortage, capital-intensive techniques may be used.
• The type and quantity of goods to be produced. For producing capital goods and large outputs, complicated and expensive machines and techniques are required. On the other hand, simple consumer goods and small outputs require small and less expensive machines and comparatively simple techniques.

Further, it has to be decided what goods and services are to be produced in the public sector and what goods and services are in the private sector. But in choosing between different methods of production, those methods should be adopted which bring about an efficient allocation of resources and increase the overall productivity in the economy.

3. For whom is the Goods Produced?

The third basic problem to be decided is the allocation of goods among the members of society. The allocation could be as follows

• Consumer goods or necessities VS luxuries comfort
• Men Vs Women
• Young Vs The aged 

4. How Efficiently are the Resources being Utilised?

This is one of the important basic problems of an economy because having made the three earlier decisions, the society has to see whether the resources it owns are being utilized fully or not. In case the resources of the economy are lying idle, it has to find out ways and means to utilize them fully.