Major economic problems - class-IX

Policies are measured implemented by the government to solve economic problems. In India, the government has implemented various measures such as National Rural Employment Guarantee Act, 2005, which is implemented to help solve the issue of rural unemployment. 

In economics, relationship between unlimited wants and scarce resources are established in such a way that both social as well as individual maximisation is achieved. The study majorly focuses on how personal gain as well as social welfare is achieved with utilization of scarce resources in an effective manner. 

Economic activities are those that are related to the production and consumption of goods and services with an aim to earn money. These activities are undertaken to earn monetary awards in cash or kind. The two objectives of economic activities are the proper allocation of resources and optimum use of resources. 

Scarcity refers to the limited supply of resources
which are demanded in the economy. It does not mean producing less goods and
services in a given time period. Scarcity of resources is the central
problem of the economy. Because the human wants are unlimited and these
resources are limited and have alternative uses. 

The labor helps in the production of goods and services by providing the required skills and knowledge. And in return for this input in the production process, they demand something in return in the form of monetary benefits. The money or price given to them is thus called salaries and wages.  

No,
there are no traditional economies in the world today. Traditional economies
are the ones which are based on one of the few traditional activities like
agriculture, hunting, fishing, etc. These economies do not have a monetary
system and are largely based on barter trade. Today there is no country which operates
as a traditional economy. 

All our wants cannot be satisfied. This is because the resources are scarce and do not get discovered every day. Due to the less amount of resources available, the demands of the huge growing population cannot satisfied. 

The most important economic problem is the scarcity of resources. The resources that are used to satisfy our wants are limited in supply. Due to this problem all the wants and desires of a man cannot be fulfilled as the wants are never-ending. This requires the efficient use of resources.

Scarcity of resources leads to both unsatisfactory wants and evaluation of alternative uses of these resources. The resources present in the economy are limited whereas the human wants are never ending and unlimited. Due to this all wants cannot be fulfilled. Hence, they remain unsatisfied. Not only this, the resources also have alternative uses. This means that they can be put to various uses. Thus it becomes important to put the resource in the best use so that they can be used efficiently. 

Scarcity of resources effects households, business firms, governments and even individuals. The main problem of economics is the scarcity of resources which affects everyone. The needs and wants of households remain unsatisfied. The businesses and governments don’t have enough resources for their operations. Due to this problem, it is necessary that we use these resources efficiently. 

‘Scarcity
of economics’ is the central problem of economics. It means that the resources
in the world are limited whereas the wants of a man are unlimited and never
ending. Due to this, the resources are always insufficient to satisfy all human
wants and needs. Apart of being scarce, the resources have alternative uses as
well. Thus, it becomes extremely important to use the resources in the most
effective and efficient manner.

The three fundamental questions of economics are:

1.      How to produce: it talks about the techniques that should be used to produce goods and services that are required by the people.

2.      What to produce: it talks about the things that should be produced with the limited resources that are available in the economy.

3.      For whom to produce: it talks about the selection of the category of people for whom the goods are to be produced. More for the rich, less for the poor or less for the rich and more for the poor. 

D.All of the above 

‘Scarce means’ is the fundamental problem of economics. It means that the resources in the world are limited whereas the wants of a man are unlimited and never-ending. Due to this, the resources are always insufficient to satisfy all human wants and needs. Apart from being scarce, the resources have alternative uses as well. Thus, it becomes extremely important to use the resources in the most effective and efficient manner.  

When we say scarcity, we refer to the scarcity of productive resources. It is the limited supply of productive resources that constitutes the central problem. The wants of people are unlimited and thus these scarce resources are unable to fulfill all the demands of the economy. 

The three fundamental questions of economics are:

1.      How to produce: it talks about the techniques that should be used to produce goods and services that are required by the people.

2.      What to produce: it talks about the things that should be produced with the limited resources that are available in the economy.

3.      For whom to produce: it talks about the selection of the category of people for whom the goods are to be produced. More for the rich, less for the poor or less for the rich and more for the poor. 

The central problem of how to produce is resolved by the relative prices and availability of factors of production. This problem refers to the selection of technique to be used for production of goods and services. Thus when we know the prices and availability of factors of production, we can identify the techniques that should be used to produce a particular combination of goods and services. 

The economic problems of what, how and for whom to produce arises because the resources in the economy are scarce. The resources present in the economy are limited but the demand for them is unlimited. Due to this, wants of people remain unsatisfied. As a result, goods are not available and the economic problems related to the allocation of distribution of resources arises. 

What to produce is an alternative problem of allocation of resources. It talks about the things that should be produced with the limited resources that are available in the economy. Thus it is important that you allocate these resources to various uses in an efficient manner. So that the maximum output can be achieved.

The three fundamental questions of economics are:

1.      How to produce: it talks about the techniques that should be used to produce goods and services that are required by the people.

2.      What to produce: it talks about the things that should be produced with the limited resources that are available in the economy.

3.      For whom to produce: it talks about the selection of the category of people for whom the goods are to be produced. More for the rich, less for the poor or less for the rich and more for the poor. 

Hence, we see that when to produce is not a central problem.

The three fundamental questions of economics are:

1.      How to produce: it talks about the techniques that should be used to produce goods and services that are required by the people.

2.      What to produce: it talks about the things that should be produced with the limited resources that are available in the economy.

3.      For whom to produce: it talks about the selection of the category of people for whom the goods are to be produced. More for the rich, less for the poor or less for the rich and more for the poor. 

So where to produce is not a central problem.

The central problem of a society refers to all such prominent problems that affect the civilians of that society directly. Therefore, the problem of 'how to eat' is the problem of deciding the accurate consumption by an individual through various commodities available to him. 

Corruption is an arrangement of dishonesty or against the law crime is undertaken by a person or organization entrusted with a situation of influence. Corruption is steady in society and occurs in all civilization. The majority general cause of corruption is the political and economic environment, personal ethics and morality and of courses, habits, customs, tradition, and demography. 

Its effects on the economy are well-research, yet still not completely.  Corruption thus inhibits financial growth and affects business operation, employment and investments. It also reduces tax revenue and the effectiveness of various financial support programs.

The correct option is D.

It is a very well known fact that human wants are unlimited as if on need is satisfied then there are generations of many other needs which are to be satisfied. Therefore, every economy is characterized by humans which refers to unlimited wants and needs. 

Corruption erodes the expectation we have in the public sector to act in our best interests. It also wastes our taxes or rates that have been earmark for the important centre of population projects – meaning we have to put up with poor quality services or infrastructure or we miss out altogether. 

Fiscal loss, damage to employee morale, damage to an organisation's reputation, organisational focus and resources abstracted away from delivering core business and services to the community increased scrutiny, oversight and regulation.

The correct option is B.

The problem of what goods and services are
produced and how much, is covered by the general term Resource
Allocation. Allocation of resources refers to the problem of assigning the
scarce resources in such a manner so that the maximum wants of the society are
fulfilled. As the resources are limited in relation to the unlimited wants, it
is important to economize their use and utilize them in the most efficient
manner. 

Commodity service method also known as value added method refers to a method for calculating the national income of quoted price of a commodity in general where the amount of cost in each level of production is added to generate the total price of the commodity including the normal profit for the production unit. 

Corruption is a shape of dishonesty or illegal crime undertakes by a person or organization entrusted with a place of authority. The negative belongings of corruption it reduces foreign direct and domestic investments, increase inequality and poverty, raises the number of freeloaders in the economy, distorts and exploits public investments and reduces public revenues. 

There are many causes of corruption like the greed of money, higher levels of market and political monopolization, low levels of democracy, lows economic freedom.

The correct option is D.

The scarce resources of an economy
have competing usages. In other words, every society has to decide on how to
use its scarce resources. 

Dividend is the allocation of reward from a segment of the company's income and is paid to a class of its shareholders. Dividends are decided and managed by the company's board of directors, although they must be accepted by the shareholders from side to side their voting rights. 

Walter and Gordon not compulsory that shareholders favour current dividend and therefore a positive relation­ship exist between dividend and market value. The reason put following this argument is that investor is generally risk-averse and that they prefer current the dividend, attaching lesser importance to future divi­dends or capital gains.

The correct answer is D.

The Reserve Bank of India was established on 1st Apr,1935 Kolkata. 

The British economy suffered due to competition from the US, Germany, and Japan, as well as the loss of markets. Industrialization of China was not a primary factor in the post-WWI British economic decline.

Total income of four families $= 5000 * 4 = 20000$

Total income of three families $= 4000 + 7000 + 3000 = 14000$

Income of the fourth family $= 20000 – 14000 =  6000$

Evading taxation, that is, avoiding to give tax to the government is a corruption. For example, we can find the bribery results in a reduction in sales reported for taxes.

Production is a process of merging various material inputs and irrelevant inputs in order to make something for consumption. It is the action of creating output, a good or service which has the value and contribution to the beneficial of the individuals. Tiling of soil by friends, construction of canal by laborers, Painting a picture for sale are considered in the production of economics. 

A person who is not gainfully employed, that is, a person who is not paid in monetary terms or in kind in return of his work, is known as an unemployed person since he cannot contribute in the GDP of a country.

Economic inequality is the unequal distribution of income and opportunity between different groups in society. Corruption plays a very important role in creating economic inequality. Education, at all levels, enhancing skills, and training policies can be used alongside social assistance programs to help people out of poverty and to reduce inequality.

Poverty brings a harmful effect on the standard of living of the citizen's of a country. People become unhealthy and malnourished due to lack of proper nutrition. Hence, the above mentioned statement is false. Poverty leaves a negative effect on the life and health of man.

Resources which are used for economic activities are called as economic resources. Human life depends on the consumption of various materials which are made up of the resources available on earth. examples : soils, minerals, water ,etc.  These resources are finite in number. 

The central problems of an economy deals with the allocation of its scarce uses, having alternative uses, for production of goods. The central problems are outlined as:

• What to produce? Consumer goods or capital goods?
  
• How to produce? Using labour or capital intensive techniques?
  
• For whom to produce? Rich people or poor people
  

A parallel economy, often called the shadow or black economy, refers to economic activities that are unreported and untaxed.

An environmental crisis occurs when the environment's capacity to support life and provide essential resources is severely compromised.

The central problems of an economy is of high importance but while solving those problems there are many problems which come as derivative problems like whether resources are fully utilized or not on using the present techniques, whether goods are produced and evenly distributed which does not create economic divide, whether the economy is growing in terms of new resources and technology that increases production. 

‘Scarce means’ is the fundamental problem of economics. It means that the resources in the world are limited whereas the wants of a man are unlimited and never-ending. Due to this, the resources are always insufficient to satisfy all human wants and needs. Apart from being scarce, the resources have alternative uses as well. Thus, it becomes extremely important to use the resources in the most effective and efficient manner. 

The basic root of economic problems arises from the fact that resources are limited and wants are unlimited thus the resources are scarce. Society must now choose what to produce, how to produce and for whom to produce. 

Scarce resources refers to the resources which are limited in quantity and have alternative uses in production of various commodities. So the problem of these scarce resources is reflected in the aggregate supply of the economy which is also limited owing to limited source of inputs. 

During deflation the purchasing power of money will increase. 

Paul Samuelson is widely credited with defining a mixed economy as one where both public and private sectors coexist and exercise control.

The central problems of production deals with production of necessary commodities using scarce means of resources. Therefore, "when to produce" is not a central problem as it is assumed that goods are demanded throughout the year because of unlimited human wants. 

One country enjoys a comparative advantage over the other in producing oil when it can produce oil at a lower opportunity cost than the other country .The country enjoys a greater advantage over other countries if the opportunity cost of producing oil in that country is less than others.

Central problem for every economy includes: What to produce?

Production, distribution and disposition of goods and services are the basic economic activities of life. In the course of these activities, every society has to face scarcity of resources. Because of this scarcity, every society has to decide how to allocate the scarce resources.

It leads to following Central Problems that are faced by every economy:

1. What to produce?

2. How to produce?

3. for whom to produce?

These problems are called central problems because these are the most basic problems of an economy and all other problems revolve around them.

The consumer achieves
equilibrium at a point which is in the highest possible indifference curve and
which fits the budget of the consumer given the prices of both the commodities. Such a point is only possible when the budget line is tangent to the
indifference curve. Therefore, only one indifference curve can touch the budget line. 

The central problem of an economy does not deal with the time of production as it is assumed that human wants are unlimited and goods are required throughout the year. Therefore, the the problem of 'When to produce?' is not regarded as a central problem of the economy.

Causes of Economic Problem:

(i) Unlimited Wants

Human wants are unlimited in numbers. There is no end of human wants; whenever one want is satisfied, automatically the other wants crop up and this goes on and on. There are several wants which are recurring in nature like, food, clothes, shoes, etc. Moreover, human wants are increasing day by day with the development of education, knowledge and civilisation.

(ii) Limited Resources:

In economics, scarcity means that commodities and resources to produce goods and services are less in relation to their demand. Goods and services that satisfy human wants are produced with the help of resources such as land, labour, capital and enterprise. These resources are scarce while wants are unlimited. Due to scarcity of these resources, an economy cannot produce all that goods and services as required by its citizens. Consequently, some wants remain unsatisfied.

(iii) Alternative Uses of Resources:

Means are not only limited but also have alternative uses. Hence, choice has to be made for different alternative uses. For example, electricity can be used for lighting lamps or for cooking food or for operating TV, Fridge, music system etc. Similarly, there are many resources which have got their alternative uses. This characteristic makes resources scarce. Thus, every economy has to choose better alternative uses of resources to which they can be put.

The question for "How to produce?" is faced by the economy. Here they should consider both labour intensive techniques as well as capital intensive techniques depending upon the available resources in the economy.

Economics is the
study that establishes an effective relationship between unlimited wants and the availability of scarce resources to overcome the economic problem of limited resources so that all the unlimited wants are satisfied, so as to achieve maximum utility by the
use of scarce resources. 

Over-population is one of the biggest problem of Indian which give rise to many other economic problems like poverty as many people are not able to attain a comfortable lifestyle due to scarce resources and unemployment because due to overpopulation and limited jobs people remain unemployed. 

In economics, sustainable development is given the upmost priority as it refers to fulfilment of current economic needs of the people without sacrificing the ability of the future generation to need their needs but if the scarce resources will be consumed in large amount then future generation will not be able to meet their needs and it will result in slower economic growth. Therefore, scarcity can only be cured by limiting needs and wants. 

The central problems of an economy deals in the production of goods as resources are scarce so there is need to answer some questions where it is decide that :

• ·         What to produce? Consumer goods or capital goods?
  
• ·         How to produce? Using labour or capital?
  
• ·         For whom to produce? Rich people or poor people?

The cost of the next best alternative foregone is termed as opportunity cost. Opportunity cost, in terms of production of a commodity refers to the resources which the producer has to
sacrifice in terms of the next best alternative which could have been produced using them, in order to produce every unit of the given commodity.

The cost of the next best alternative foregone is termed as opportunity cost. Opportunity cost, in terms of production of a commodity refers to the resources which the producer has to sacrifice in terms of the next best alternative which could have been produced using them, in order to produce every unit of the given commodity.
Therefore, opportunity cost is a result of scarcity of resources in the economy.

When there is excessive income in the economy then a large part of it is spent on consumption of goods and services and its a human tendency that human needs are unlimited, so when the selection is done between various commodities in the market it is very difficult for all the consumers to decide the product being rational so they face problems inchoosing the product.  

Economic insecurity describes the risk of financial loss faced by workers and households as they encounter the changeable events of social life. Our re-considerations suggest a four-part structure for studying the distribution and trend in these economic risks. 

First is that a centre on households captures the micro-level risk pooling that can smooth income flows and stabilize economic well-being. 

Second, insecurity is related to income instability and the risk of downward mobility into poverty. 

Third, difficult events such as unemployment, family closure, or poor health commonly trigger income losses. 

Fourth, the belongings of difficult events are explanatory by insurance relationships provided by government programs, employer benefits, and the familiar maintain of family. 

The correct option is D.

The most serious economic problems in India are:

Opportunity cost of
production of a commodity refers to the resources which have to be sacrifice in terms of the next best alternative which could have been produced using the same resources.
Therefore, the next best alternative which could be produced on the piece of land mentioned here is 80 tonnes of wheat, which is sacrificed for the production of 100 kg of rice.

The question for "How to produce?" is faced by the economy they should consider both labour intensive techniques as well as capital intensive techniques depending upon the availability of resources in the economy.

Scarcity of resources refers to the situation where resources are limited in quantity and have alternative uses in production of various commodities. So the problem of these scarce resources is reflected in the aggregate supply of the economy which is also limited owing to limited source of inputs and unlimited demands as human wants are unlimited. 

Output of Good-X decreases by 500 units and output of Good-Y increases by 500 units, when some resources are shifted from the production of X to the production of Y. The marginal opportunity cost is 1.0. The slope of production possibility curve is marginal opportunity cost which refers to the additional sacrifice that a firm makes when they shift resources and technology from production of one commodity to the other. The formula to calculate marginal opportunity cost is sacrifice/gains. Therefore, the marginal opportunity cost is 500/500= 1.

In a free economy, the producers will produce goods for those who can afford to pay high price. Poorer sections of the society are often, thus, ignored. As a result, the gap between the rich and the poor enhances.

The slope of
production possibility curve is the marginal opportunity cost, which refers to the
additional sacrifice that an economy needs to make when it shifts resources and technology
from production of one commodity to the other. Since resources are use
specific, therefore every time when one more unit of a commodity is produced
more units of the other commodity is sacrificed that results in increasing
marginal opportunity cost.  

The central economic problems rise for the basic fact that the resources in the economy is scarce whereas the wants are unlimited. Therefore, it deals with the efficient allocation of the resources for the production of goods and services in the economy and regulations/intervention of the government can do little about central economic problems.

In a free market economy,
prices of commodities in the market are affected by the forces of demand and
supply. This generates open competition in the market which leads to optimum
allocation and utilization of resources in the economy without any planning or intervention of any authority.

The slope of
production possibility curve shows the marginal opportunity cost which refers to the
additional sacrifice that an economy must make when they shift resources and technology
from production of one commodity to the other. Since resources are use
specific, therefore, each time when one more unit of a commodity is produced a larger quantity of the other commodity is required to be sacrificed. This results in increasing
marginal opportunity cost., which is denoted by the slope of the PPC.

The central economic problems rise for the basic
fact that the resources in the economy is scarce with many alternative uses whereas
the wants are unlimited. Therefore, it deals with the efficient allocation of
the resources for the production of goods and services in the economy. 

Economics deals in the problems of how resources are allocated in the production of various goods and services in the economy for the satisfaction of human wants because these resources are scarce and have alternative uses whereas human wants are unlimited

Marginal opportunity cost $= \dfrac{\triangle ,\text{Loss of output of Good - 2}}{\triangle, \text{Gain of output of Good - 1}} = \left[\dfrac{50}{10} = 5\right]$

Marginal opportunity cost $=5$. 

Micro economics deals with solving the central problem of the economy which deals with resource allocation. It is the study of how resources are allocated in the production of various goods and services in the economy for the satisfaction of human wants. This is because these resources are scarce and have alternative uses whereas human wants are unlimited.

Economics deals in the problems of how resources are allocated in the production of various goods and services in the economy for the satisfaction of human wants. This is because these resources are scarce and have alternative uses whereas human wants are unlimited.