The core economic activities of existence are the creation, allocation, and consumption of products and services. In the course of performing these activities, a society may face a shortage of resources.
The scarcity is a consequence of the finite nature of resources, and the unlimited nature of human wants. This discrepancy between supply and demand forms the central issues of an economy.
The central issues of an economy are based on the following factors:
- What should be produced?
- How should it be produced?
- Who should it be produced for?
Let's delve deeper into these points.
What should be produced?
This is a primary issue in an economy. It pertains to the kind and quantity of goods and services that should be produced.
Given the finite nature of resources, producing more of one commodity will result in the decreased production of another.
How should it be produced?
This aspect addresses the method or technique through which the goods and services can be produced. Typically, there are two methods of production:
- Labour intensive methods
- Capital intensive methods
The choice of production method depends on the resources available in the country, hence the allocation of resources poses a challenge.
Who should it be produced for?
This issue concerns deciding who the final consumers of the produced goods will be. With limited resources in an economy, it's challenging to cater to every sector of society.
This leads to a problem of choice in an economy as a commodity that may be in demand by one section, may not be sought after by another section of society.
This situation arises due to income disparities among the population, which leads to variations in consumer behaviour.
With this, we conclude the discussion on the central issues of an economy. Keep visiting our website for more such informative content.
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