Economic Problem-

Economic problem is universal truth of each and every economy, It is the problem arises due to unlimited human wants and scarcity of resources. Above we have explained how a consumer, producer and Government faces economic problem.

Basic economic problem or Four basic economic questions – 

Economic There are four basic economic questions arises by firms or Government in each and every economy.

1. What to produce
2. How to produce
3. For whom to produce
4. How much to produce  

1. What to produce- In an economy, Firms or Government will always face a question known as what to produce ? Either goods or services. Say an economy decided to produce goods. The problem of what to produce solved.
2. How to produce- After solving the problem of what to produce, the economy will face its second problem, How to produce the  goods. Either hiring more labour less capital or vice versa. Once an economy decided that production can be done by hiring more labour and less capital. The second problem how to produce solved.
3. For whom to produce- The third basic economic question arises in an economy is for whom to produce the goods or services? In the above explanation we have decided to produce goods. Say for example the economy is targeting to produce shoes but who will be the target consumers ? There are many varieties of shoes for different ages such as Sports shoes or formal shoes. Say an economy is targeting to produce sports shoes then the problem of for whom to produce has been solved.
4. How much to produce- This problem is based on demand and supply of goods or services.  

Factors of production – 

There are many resources which are known as factors of production. These resources are essential to produce goods or services in an economy. The factors of production LLCE

1. Land – It is one of the factor of production. Land is a natural resource which is essential to produce goods or services. Example of land can be- Mountain, Desert, Agricultural land, Ocean, Sea, River, Industrial land etc. These are considered as land because we often get either resources or it is used to produce further goods or services.

Reward for land- Rent

Mobility of land- Geographically its immobile however occupationally its mobile the same land can be used for different purpose

Question- Can we consider residential land as Land YES or NO ? Discuss this with our experts today or watch our YouTube videos https://www.youtube.com/channel/UCoqI7C9rI2UbFPITF2bPgnQ

2. Labour – Labour is considered as human resource, which is used to produce either goods or services or both. Labour can be categorized as Skilled or Unskilled labour- Skilled labour such as  Engineer, Doctor, Teacher, Professor, Designer, an Actor etc these are skilled labour because proper education & training is required to do skilled job, whereas Unskilled job such as construction workers, here proper education that is 12 to 16 years of education  and training is not required to lift bricks. There are various interesting examples available to understand Labour.

Reward for labour- Wages

Mobility of labour- Labour is mobile, however there are many factors which are behind the immobility of labour such as Children education, Social, family, language & culture, Legal restrictions etc

3. Capital – Capital in economics can be considered as machines. It is machines which is used to produce goods or services. There are many circumstances Capital as consider as stock or money but in economics we only consider machines. It is also a matter of discussion and debate. Few other capitals such as Financial capital, natural capital, Physical capital etc

Reward for capital- Interest

Mobility of capital- Its mobile, however giant machines such as railway tracks inside the mining is not mobile. It is difficult to take it our or may be cost of taking it out will be very expensive.

Question – Why in economics capital is knows as only machines but not money or stock or all ?  

Question- How Interest can be consider as reward for capital ?

For more details watch our videos or get in touch with our experts https://www.youtube.com/channel/UCoqI7C9rI2UbFPITF2bPgnQ

4. Enterprise – The term enterprise means name of a business. For example JIO Telecom in India. It is the enterprise who take risk to produce goods and services.

Entrepreneur- The one who run the business. For example – Mr Mukesh Ambani helped his son cum entrepreneur to start JIO telecom. Here Mr. Mukesh Ambani and his son can be considered as entrepreneur

Entrepreneurship- The idea invested in the business or using the proper skills to run the business. Example- The way JIO telecom entered into Indian market is the best example of entrepreneurial skills. Free sim, Free calls, Free SMS, Free internet in early 8 to 10 months.

Reward for enterprise- Profit

Mobility of enterprise- It is the most mobile among all the factors of production

Free Good VS Economic good–  Free good are those goods which a consumer should not pay for using the same. It is the gift of nature or GOD and nature or GOD is not charging for the same. For example air, rain water, sun light.

Question- In which case fresh air, rain water, greenery & proper sunlight can be consider as economic good or economic services? For better understanding visit our YouTube channel https://www.youtube.com/channel/UCoqI7C9rI2UbFPITF2bPgnQ or connect with our experts.

Economic good are those goods for which a consumer has to pay for. It is economic good because production cost has been involved. For example we have to pay for buying any good or service like electricity bill, a mobile phone, vegetables, TV, car etc

 Production possibility schedule- It is the tabular representation of two different goods or services which are being produced at maximum level within an economy with given scarce resources (LLCE).

Schedule 1

Production possibility schedule- Production possibility curve– It is the curve, which shows two different goods or services can be produced at maximum level by using the scarce resources (LLCE) land, labour, capital & resources.   

                                                                                       Diagram 1

In the above diagram resources has been used to produce good Y and good X. Point a,b,c are the different combinations where production of both the goods are possible in an efficient way, However point e achieved inefficiency as few resources has been utilized to produce both the goods however point d is unattainable as resources are not available to produce at point d.

Question- In the above diagram, Is there any possibility that production will be possible at point d?

For better understanding visit our YouTube channel https://www.youtube.com/channel/UCoqI7C9rI2UbFPITF2bPgnQ or connect with our experts.

Shift in PPC –There are two causes behind shift in PPC. PPC may shift outward or right and inward or left. When there will be increase in resources (LLCE) PPC will shift to the right or outward shift whereas when there will be decrease in resources (LLCE) PPC will shift to the left or inward shift.

LLCE= land, Labour, Capital, Enterprise

                                                                                              Diagram 2

In the above diagram, AA’ is initial PPC, due to increase in all or any one of resources (LLCE), PPC shifted outward from AA’ to BB’ and due to decrease in the resources (LLCE) PPC shifted inward from AA’ to CC’.

Movement along PPC- There might be movement on same PPC from one point to another, In case if the producer or an economy has seen an increase in the demand for Good X, hence resources can be moved from one point to other point to meet the demand by producing more unit of good X and Vice Versa.

In the above diagram we can see, Initial production of good X is 10 units and Good Y is 10 units, When an economy has realized there is an increase in the demand of good X, the resources has been moved from point a to c to produce more of good X and Vice versa for good Y.

Rotation in PPC-PPC rotates along X axis because of improvement in technology or different techniques in the production of good X.

                                                                                           Diagram 3

 In the above diagram PPC rotates from AA’ to AB due to improvement in technology .

PPC rotates along Y axis because of improvement in technology or different techniques in the production of good Y.

                                                                                                   Diagram 4

In the above diagram PPC rotates from AA to AB due to improvement in technology.

Shape of PPC or Why PPC concave –  A PPC can be concave to the origin because of increasing opportunity cost. Increasing opportunity cost has been calculated in schedule 1. A concave PPC has been drawn in diagram 5.

                                                                                                            Diagram 5

Shape of PPC or why PPC straight line- A PPC can be straight because of constant opportunity cost. constant opportunity cost has been calculated in schedule 2. A straight PPC has been drawn in diagram 6.

                                                                                                     Diagram 6