The concept of scarcity and choice were introduced by modern
economist Prof. Lional Robbins, in the decade of 1930. According to him, human
desires are unlimited and resources are limited. Thus, the effects of unlimited
human wants (desire) and limited supply of the resources creates the problem of
scarcity in human society. The quality supply of economic resources such as
physical resources, human resource, mineral resources etc is very limited in comparison
to their demand. Therefore, economics has to decide how to use the scarce resources
to obtain the maximum possible satisfaction of the human society.
Problem of Scarcity
In ordinary sense, scarcity refers to unavailability of goods and
services in an economy. Scarcity refers to the condition of insufficiency where
the human beings are unable to fulfill their wants in sufficient manner. In
other words, it is a situation of fewer resources in comparison to unlimited
human wants. In economic, sense, a commodity is scarce not because it is rare
in the market but the resources to hare it are limited of commodity is scarce
because it commands value or price. The resources are scarce, it does not mean
that they are not available but they are limited in comparison to human wants.
Scarcity is taken in relative sense rather than absolute term, which explain
the relationship between limited resources and unlimited human wants. There is
poverty and human misery because of scarcity of resources.
An economy exists because of two basic facts. Firstly, human wants
for goods and services are unlimited and secondly, resources to produce goods
and services are scarce. We can not satisfy all our needs because of scarce
resources. It is the scarcity problem which gives rise to many other economic
problems.
Economics is the subject that aims to utilize scarce resources in a
scientific way so that human beings can achieve maximum satisfaction from the
use of limited economic resources. The problem of scarcity is present not only
in developing nations but also in highly developed countries. However, the
nature of scarcity changes along with the change in living standard and life
system of human beings.
Problem of Choice
It is not possible to satisfy all wants with limited resources, we
face the problem of choice. Choice is the act of selecting few goods or quality
among the bundle of goods. In other words, it is the process of selecting few
wants from the bundle of wants. Problem of choice also comes due to the limited
resources in comparison to wants.
It is decided to use move resources in one live of production, some
resources must be withdraw from another commodity. Thus, the problem of choice
from the view point of society as a whole refers to what to produce, how to
produce and for whom to produce?
Further, due to scarcity of resources, goods cannot be produced in
abundant quantities to satisfy all wants of all people of the society. This
arises another economic problem of choice, how the national product is
distributed among various number of a society. Therefore, choice involved in
economic activities at both consumption and production level. It is also
concerns individual and the state.
Allocation of Resources
Allocation is related to the choice of how much of resources to be
allocated in what sector. It is the basic problem of every economy. Allocation
of resources refers to the use of scarce resource in such way which gives
maximum possible satisfaction. This means goods and services are produce in
such a manner that the satisfaction derived from them is to be maximum.
The productive resources (like land, labour, capital, raw material
etc.) are limited and scarce. Therefore, scarce resource uses in such a way
which yields maximum level of output with minimum cost. The allocation of
resources discusses principle of right sharing of resources among the competing
sectors.
The major economic problem are the issues of allocation of resources
which is related to the scarcity of resources and unlimited wants. In a free
market and perfect competitive economy, allocation of resources deals with the
following fundamental problems of an economy.
(a) What to Produce
The first concern is related with "What to produce? How much to
producer?" Because resources are scarce or limited, no economy can produce
as much of every good or service desired by all member of the society.
Therefore, we must choose between different alternative collection of goods and
services that may be produced. It also implies the allocation of resources
between the different types of goods. The problem of what to produce and how
much to produce depends on the necessity of the citizens of the country.
(b) How to Produce
Another question is related with the method of production. In some
cases, labor may play a major role in production which is known as
labour-intensive technology. In other, capital may play major role in
production which is called capital-intensive technology which method to be used
in production depends on the availability of labor and capital.
Laobur-intensive method creates employment opportunity in an economy era it
helps to solve the unemployment problems. Similarly, capital-intensive method
produces large value of goods and services with minimum cost. Therefore, which
method to be used in production labor or capital intensive depends on the
current state of the economy.
(3) For Whom to Produce
For whom to produce refers to how the national output is to be
distributed among the different classes of the people. That is who should get
how much. This is the problem of sharing the national income and output to all
the people. This issue is also related with maintaining social justice. Since
resources and goods and services are scarce in every economy, no society can
satisfy all the wants of all in people. Thus, a problem of choice arises. For
whom to produce also concern with meeting the basis requirement of all segment
of production is the main criteria of resource allocation.
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