Fundamental Problems of Economic System

3980 Words Aug 9th, 2010 16 Pages
UNIT 1 – FUNDAMENTAL PROBLEMS OF ECONOMIC SYSTEMS
1.1 INTRODUCTION
In this unit you will get acquainted with the fundamental problems of the economy. The understanding of the concept will help you bring closer to the basic idea of the economy’s problems as well as remedies of such problems. In this unit you will get detailed description of what is an economic system, problems of economic system, factors of production, concept of production possibility curve, and the fundamental of allocation of resources in different types of economies.
1.2 AN ECONOMIC SYSTEM
Before we further move on we have to know about the sources of economic problems and a brief about the economic system.
1.2.1 Scarce Means and Unlimited Wants
Want is Want is an
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1.3 FACTORS OF PRODUCTION

Production process is an end to end activity which means that there is a relational pedagogy between input and output. Factors of production also known as productive inputs are the resources employed to produce goods and services, thus it constitutes the input part of the production process. Factors of production involve in the production process and improves the working of the process but do not form the ultimate part of the product. Factors of production can be broadly classified as: 1. Land 2. Labour 3. Capital 4. Entrepreneurship

1.3.1 Land

In economics, land includes all natural resources which are free gift of nature. Thus, by land economists do not mean only agricultural soil, but also other natural resources such as minerals, water, climate and forests. Payment for use of land per period is called Rent.

Land as factor of production implies the ground used to built and start the production moreover it serves as a pool of various minerals and valuable natural resources which facilitates the human mankind. Land is a fixed factor of production and thus it is not possible to increase. Land helps to facilitate the production only if the efficient workforce is used to generate the maximum output out of the limited resource. This means optimum utilisation of resources.

1.3.2 Labour

Labour represents all physical and mental abilities which people can make available for production of

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