Question

9. WHAT ARE THE PROBLEMS ASSOCIATED WITH THE ALLOCATION OF RESOURCES IN AN
ECONOMY? WHY DO THEY ARISE?

Answer 1

Explanation:

(a) Limited or Scarce Resources: Resources are scarce in relation to our wants and economy cannot produce all that people want. ... For Whom to Produce: This problem is concerned with the distribution of income in an economy. It is concerned with whether to produce goods for high-income groups or low-income groups.

Answer 2

Answer:

There are three reasons : (1) Wants of the people are unlimited. (2) Resources are limited. (3) Resources have alternative uses. 'For Whom to Produce' means that how should output produced be distributed among people. How much output will each person get depend on the income of the person, Therefore, the problem amounts to how should income be distributed in the society. Detailed Answer: Central problems of an economy arises due to the following reasons : (a) Limited or Scarce Resources: Resources are scarce in relation to our wants and economy cannot produce all that people want. It is the principal reason for the existence of economic problems in all economies. (b) Alternative uses: Resources can be put to alternative uses. For example, the land is used not only for the production of crops but also for construction buildings and factories. As a result, the economy has to make a choice between the alternative uses of the given resources. (c) Unlimited wants: Human wants are unlimited in number. They are never ending and they can never be fully satisfied. For Whom to Produce: This problem is concerned with the distribution of income in an economy. It is concerned with whether to produce goods for high-income groups or low-income groups. The capacity of people to pay for goods depends upon their level of income. Thus, this problem is concerned with the distribution of income among factors of production who contribute in the production process. It has two aspects : (i) Personal distribution: It means how the national income of an economy is distributed among different groups of people in the society. (ii) Factorial distribution: It relates to income share of different factors of production such as wages for labour, interest for capital, rent for land etc..