ECONOMIC QUESTIONS AND PROBLEMS











The Main Economic Questions of  Every Society

Every society is faced with these economic questions

1. What to produce? Only goods and services that satisfy human wants are useful and should be produced.


2. How to produce? Use the appropriate combination of inputs (factors of production i.e. means of production) that gives efficient allocation and utilization of the scarce productive resources. Inputs that minimize cost should be used.

Note: Efficient utilization of resources means that resources are used in the best way to meet our wants; efficient allocation means assign the resources for the best use.

3. For whom to produce? Who will get satisfaction from the consumption of goods/services produced? Will it be adults or children, high income earners or low income earners?


The Main Economic Problem of  Every Society
According to Robbins, the unlimited wants vis-à-vis limited resources (scare resources) provide a
foundation for the field of Economics. Since human wants are unlimited but the resources (i.e. the means) to satisfy them are limited, an economic problem arises.

The main economic problems faced by every society are:

- unlimited human wants

- limited available resources

- how to satisfy unlimited wants with limited resources


So as a field of study, Economics seeks to study the relationship between ends (i.e. unlimited wants) and means (limited resources), and how to allocating limited resources to unlimited competing wants.


Why We Study Economics
First, let us consider a one-point summary of why we study economics. We consider this in terms of how a layman and economist would say it.

Layman: We study Economics to know how to use the scarce resources available to us judiciously.

The Economist: We study Economics to enable us make efficient allocation and utilization of the scarce resources available to us.

Reasons Why We Study Economics
The usefulness of Economics is the reason why we study the subject.

Consider this in terms of the sectors in the economy: household, firm, government (public sector) and the foreign sector.

(Ensure that your points spread across these sectors when you answer examinations questions on this subject matter. A particular point may cover all the sectors, however.)

As stated earlier, “To allocate and utilize scare resources efficiently” is the main point in our study of Economics.

So, Economics is the study of human behaviour as it relates to efficient allocation of resources.


In detail, our reasons for studying Economics include the following:

1. For the consumer to study and identify the choice that maximizes his/her utility.
(To make choice that satisfies consumer wants from the available scare resources. This is efficient utilization of the consumer’s resources)

2. For the firm to study and identify efficient allocation and utilization of resources that minimize production costs and maximizes profit.

3. To produce goods/services that best satisfies our unlimited wants.

4. To provide economic analysis from which good economic decisions can be made.

5. To plan our budget on how to allocate our scarce resources.

6. To help government policy makers analyse and identify government economic policies that stabilize prices, reduce unemployment, and increase economic growth and development.

7. To help government policy makers identify import and export policies that give favourable terms of trade and balance of payment.

8. The study of Economics is a requirement for further studies in any discipline under management science and social science, such as Accounting, Banking and Finance, Business Administration, etc.





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