Basic Economic Problems: What to produce, how to produce, for whom to produce and effiency of Resource Use.

INTRODUCTION

Basic economic problems refer to the problems people encounter in the society while attempting to satisfy their numerous wants with the limited resources available to them. These basic economic problems of society include what to produce, how to produce, for whom to produce and efficiency of the resources used or efficient use of resources.



WHAT TO PRODUCE
This question is one of the basic economic problems that confront any society. This problem arises mainly as a result of the fact that human wants are unlimited relative to the available resources. It is practically not possible to produce all human wants or needs, hence, the need for resource allocation so as to meet the pressing needs of the people.


Factors that determine what to produce

Factors to be considered in determining what to produce in a society are the following:

1. consumers' needs: The producers will have to consider the needs of the consumers. They have to decide what needs to be produced, the quantity and quality of goods and services required by the consumers.
2. Market demand: The demand for a particular set of goods and services by consumers may encourage producers to produce more of these goods and services. No producer will ever produce what is not demanded in the market.
3. Consumer income: In deciding what to produce, the producers normally consider the earnings of consumers in the society. Producers do ask themselves this question: Are the consumers' earnings enough to be able to purchase goods and services at a given price when produced. If yes, they go ahead and produce but if no, they may not go ahead with the production.
4. Cost of production: A producer will go ahead and produce goods and services when their cost of production is low to enable him make some profit. But when cost of production is high in such a way that it cannot make profit, he will not produce. Government may decide to take up such production just to provide the goods and services to satisfy people's wants.
5. Availability of resources.
6. Type of economy.

HOW TO PRODUCE

As soon as what to produce is established, another basic economic problem is how to produce the goods and services.

Factors that determine how to produce

1. Technique of production: This refers to the level of involvement of human labour and machines. We have two techniques of production. These are: Labour intensive and Capital intensive techniques.
   

Labour intensive technique employs more labour and less capital equipment and machines while the capital intensive technique employs less labour and more capital equipment and machines.

2. Technological advancement: The method of production adopted depends on the level of technological development of the state. Developing countries usually use labour intensive technique while developed countries adopt capital intensive mode of production.
   
3. Production function: This involves any analysis which shows the possible quantity of goods by using each given alternative combination of resources that produces that largest quantity of output at the lowest unit of cost of production. A favourable production function will ensure large production of goods to meet the demands of the customers.
   
4. Relative cost of factors of production.
   

FOR WHOM TO PRODUCE

All goods and services produced must get to the final consumers. Production is not complete until the goods and services get to the final consumers.

Factors that determine who to produce for

1. Satisfaction of wants: All goods and services produced must satisfy the needs or wants of the society.
   
2. Level of income: The higher the level of income of the consumers, the more they are able to buy goods and services produced.
   
3. Type of economic system: In the capitalist and mixed economies, the answer to the question depends on the prices of the various goods and the amount available to each individual, but in a socialist economy, the state normally introduces a quota system in the distribution of goods and services among the people.
   

EFFICIENCY OF RESOURCE USE

Efficiency of resource use in production refers to the optimum use or combination of factors of production to achieve higher and better output at a reasonable cost. Since the resources available in the society are limited relative to demand for them, it becomes a wise decision to ensure that these limited resources are efficiently used to produce the desired goods and service.

Factors that determine efficient use of resources

1. Quality of labour
   
2. Efficiency of production.