Chapter- 3
Basic Problems of an Economy
Q1) what is Economic problem? (2 marks)
Sol - Economic problem is the problem regarding allocation of limited resources for the production of
alternate goods and services.
Q2) what is law of scarcity?
Sol- The law of scarcity states that goods are scare because there are not enough resources to produce
all the goods that people wants to consume.
Q3) why does the economic problem arise?
Sol - 1) unlimited wants - The first fundamental fact is that human wants are unlimited because of
unlimited desire of the people for goods and services, wants are recurring, Human wants are multiple so
all these indicate that human wants are unlimited.
2) Limited resources - Resources are limited in response to the wants, resources like land, labour,
capital, equipments and entrepreneurship. So these productive resources are limited in nature and
economy.
3) Resources have alternative uses - An important characteristic of resources is that resources can be
put to alternative uses for example a piece of land can be used to produce wheat, vegetables, etc.
Thus the economic problems arise from the scarcity of resources relative to human wants.
Q4) what is economising of resources?
Sol - By economising of resources we mean that the available resources should be allocated among
different uses in such a way that resources are put to their best possible use.
Q5) What is Central problems of an economy?
1) What to produce and how much to produce - The first central problem which every economy has to
face is briefly termed as 'What to produce ' . It is the problem of determining the quantity of each
commodity and service to be produced. Since the resources are scarce which means society cannot
produce all the goods and services, so every economy has to decide commodites to produce or which
not.
2) How to produce - The second problem which economy has to face is how are goods, basically choice
between technique of production labour intensive or capital intensive. So Every economy has to make
choice between both the techniques if the country have potential labour so they must labour intensive
and if labour availability is low but capital is high so they must capital intensive.
3) For whom to produce - For whom to produce is the problem of distributing the total output of goods
and services produced in an economy among its members. Basically in this it studies how the national
income must be distributed among the individual , the problem of distribution of income among the
income earners. (Wages, interest, rent etc).
Apart from these three, there are other problems too faced by economies of the world.
1) Problem of fuller utilisation of resources. - In this we study how we can allocate or use the resources
to the optimum level. And used to it's full potential.
2) Problem of efficient use of resources - This is problem regarding the wastage of the resources. Which
is only possible when the resources are effectively and efficiently used.
3) Problem of Economic growth - it involved that how the productive capacity is increased, raise the
standard of living and increase national and percapita income.
Q4) Explain the meaning of PPC curve with the help of diagram?
Q5) How the central problems are solved using PPC curve?
Sol - 1) The problem of scarcity is shown by the points lying outside the production possibility curve.
2) The problem of choice is shown by the need for choosing from different points on the
production possibility curve.
3) The problem of what to produce is shown by a particular point on a given production possibility
curve.
4) Problem of full and efficient utilsation of resources is indicated by showing whether the
production is on the boundary or inside the boundary of a production possibility curve.
5) Problem of economic growth is shown by shift of the production possibility curve to the right.
