Basic Economic Problems

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What are the problems that producers encounter? What are the basic economic problems?

There are no possibilities of erasing completely economic problems from the face of the Earth. Productive resources are not only scarce but also unjustly distributed among the members of society. On the other hand, the needs of people are increasing due to population explosion. Moreover, human wants are unlimited. The satisfaction of people is endless. This is human nature. That is why even the rich countries have economic problems. Unfortunately, in the case of the poor countries, basic needs like food, clothing, shelter, health and education can not even be adequately supplied. Their rapid population growth, inefficient government, and maldistribution of wealth have made their citizens more miserable and hopeless. Such social and economic injustices have remained with them for centuries. 

3 Basic Economic Problems

1. What goods and services to produce and how much. In business, a feasibility study determines whether certain goods or services become profitable or not in a given market. Investors are only willing to produce goods and services which give them good profit. Apparently, there is no problem. Just simply conduct a market study or feasibility study. In reality, however, it is not always possible to produce all the goods and services that people need, because resources are limited. For example, without oil our factories cannot function. There are times when factories cannot operate because the imported raw materials are not available. 

Since human wants are many while available resources are few, there is a need to establish priorities. It is not possible to satisfy all our needs or wants at the same time. For instance, a father with a limited financial resource has to decide whether to build a new house or send his son to college. A student has to to choose whether to purchase his textbooks or have a good time. It is rather unfortunate the poorest among us have extremely limited priorities. In not a few cases, they do not have at all the opportunity to choose - for there is none. Many people cannot buy food and medicine because they have no money. Those who survive the agonies of hunger and disease have been lucky to taste the limited relief goods of the rich countries. 

2. How to produce the goods and services. This is a problem of production technology or methods of production. As a general rule, goods and services must be produced in the most efficient manner. This means maximum output with minimum input without sacrificing quality. Although the rich countries use advanced technology in their production of goods and services, there are still goods and services which they do not know how to produce efficiently. That is why they have not stopped in their research and development projects.

The application of modern technology has increased output and decreased cost of production. Such production efficiency has greatly contributed to the high standard of living of the industrial countries. In fact, it is cheaper for them to use machines than employ workers. This has not created unemployment problems because of the many commercial and service activities of the rich country. In Japan, robots are being used in factories, hospitals and offices due to shortage of manpower. 

In the case of the poor countries, they cannot afford to apply modern technology. This requires modern machines and these are expensive. Besides, modern technology is not yet appropriate for the poor countries. They have an oversupply of idle labor force. The use of more machines only creates greater unemployment problems. For this reason, it has been suggested that poor countries should use labor-intensive technology. This means more labor and less machines.

3. For whom are the goods and services. This is a problem of distribution. Who gets the goods like rice, clothes, shoes and the services such as education, medicate, etc. ? In a pure market economy or capitalism, goods and services are definitely for those who have money and are willing to purchase them. Clearly, the rich acquire more goods and services than the poor. The rich have several cars, mansions, and elegant clothes and jewelries. Their children study in the most prestigious foreign universities. Their doctors are the most famous. They can buy all goods and services that money can buy.

In contrast, the poor, especially the poorest, can only acquire goods and services depending on their purchasing power. Some poor people do not eat three times a day. In certain regions in Africa, people eat only every other day. Millions of children die in the arms of their mothers because of hunger and malnutrition. Goods and service are for sale. Businessmen do not offer these for charity or for free. Otherwise, they would be out of business. However, in other economic systems, the government interferes in the distribution of goods and services in order the welfare of the poor. A good example is in US, where the aged are given pensions. People in other countries are given free education, and other basic services. Thus, the shortcomings of the free-market economy have been reduced by the social programs of the government. Unfortunately, the poor countries are not yet capable of extending such benefits to their poor citizens.