Last updated on August 6th, 2023 at 08:12 am
There are basic economic problems every economy faces. Definitely, there will be the availability of limited resources. Human wants are insatiable that’s one of the reasons scarcity arises. Let’s assume that there are more than enough resources, the economic problem would not probably arise.
But the study of economics makes us understand that there will always be basic economic problems every country wants to solve.
Table of Contents
With the effective application of economic solutions to problems, the living standard of people can be improved.
What are the basic economic problems?
The fundamental economic problems every economy and society encounter are:
- What to produce
- How to produce
- For whom produce
- Efficiency of resource use
- Instability and unemployment
What To Produce
This has to do with confronting the problem of resource allocation. It’s important to set priorities since we can not have everything despite our insatiable wants.
This way, we must make a decision on what to produce. As earlier pointed out, economic resources are limited, hence the available ones have to be allocated in such a way that they would meet society’s needs.
As such, what should be produced depends on the needs and wants of the people. How to provide a solution to the problem of “what to produce” is approached differently in:
Socialist system
Capitalist system
Socialist system
In a socialist system whereby private property belong to the state and the state’s central authority controls and directs resource allocation.
The state decides on the nature and quantity of goods and services to be produced. This is achieved through the estimation of the wants and needs of the people.
Capitalist system
In a capitalist system, the market forces of demand and supply and the free choice of consumers and producers determine how resources should be allocated and what should be produced.
How To Produce
What techniques should be applied in production? Having identified what to produce and for whom to produce, it’s imperative to know how to implement production.
Questions like:
What are the available methods?
How should the methods be employed?
Which method is most cost-effective to achieve the desired result?
For instance, a country like Nigeria which has abundant crude oil and gas faces the problem of how to refine it into a usable product.
It was Alhaji Dangote owner of the Dangote refinery who was able to solve the problem which is going to cut reliance on foreign refineries.
It is very important to point out that the decision of on which method to use for production should depend on the prevailing circumstances in each country.
This is definitely a problem of distribution. How will the produced goods be distributed? Should everyone have an equal share of social income?
For instance, to site a beer brewery in a country that is guided by Shariah Law may be a wasted resource e.g Northern Nigeria where beer products worth billions of Naira had been destroyed because of Shariah.
For Whom To Produce
Above all, for whom to produce is a fundamental problem of every society. For whom to produce, what to produce, are largely determined by the price system.
Efficiency Of Resource Use
In relation to economics, efficiency involves making the choices that will give the greatest possible degree of satisfaction.
Efficiency is the goal of getting the most out of productive efforts. This can be divided into two: 1) allocative efficiency, 2) technical efficiency.
The efficiency of resource use is one of the economic problems every society faces because there must be efficiency in the organisation and management of resources in order to achieve the set target in production.
This is measured in terms of the value of the commodities produced and the value of the inputs or resources used in producing them.
Instability and Unemployment
Economic instability and high unemployment rate are prevailing problems confronting many economies around the world, especially in poorly managed economies.
Inflation, especially hyperinflation, if not controlled, may lead to an economic crisis while poor monetary policies could wreck an economy.
Unemployment could fuel social vices and social disorder as can be seen in Nigeria. At the time of publication (Monday, March 28, 2022), youth unemployment in Nigeria stood at 42.5 per cent
In the United States, youth unemployment stood at 8.3 per cent as of February 2022, according to tradingeconomics.com, that a huge difference between the U.S. and Nigeria.
In Nigeria, many graduates can not find jobs. Most of them remained unemployed for several years.
Recap:
Every economy faces five basic economic problems, though new problems are emerging, they still revolve around the ones listed above. It is expected of a responsible government to provide solutions to any economic problem.
