The Basic Economic Problem Is Scarcity

1472 Words Mar 20th, 2015 6 Pages
Question No.1
The basic economic problem is scarcity. It occurs when people want infinite but resources are limited. Scarcity is due to limited resources because people want more and more. Resources are shortage and have alternative uses. There are three causes of construction such as land, labour and capital. Scarcity is the excess of human wants over what can basically be produced ' '. The central economic problem effects on command economy. Command economy is a economy in which Government controls the economic deeds and give the judgment what to produce, how to produce and manage the distribution levels and setting prices. Such economies happen in China, North Korea, Cuba and the former Soviet Union. Conventionally, command economies are less than free market economies to show their ability of producing goods and services efficiently .This disorganization produces shortages and wasteful oversupply. The lack of ability of the Government creates problems of economics. In a moderately small budget, there are thousands of variables inducing demand. If the central planner has one mistake then they miscalculate demand, set incorrect production, price levels and create shortages or surpluses. In command economy, Government should decide carefully what to create, how to create and for whom to yield.
In the field of macroeconomics, the production possibility frontier shows the point where economy is most effectively producing its goods and services. If the economy is not…
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