Basic Problems of an Economy

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  • Q1

    What do you understand by the problem of efficient utilisation of resources?

    Marks:3
    Answer:

    The problem of efficient utilisation of resources implies, “Efficiency in production and distribution systems.

    It includes:

    • Optimum distribution of goods and services such that it increases social welfare.
    • A situation when further production is not possible without sacrificing the other good, i.e. maximum amount of goods and services given the available resources.

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  • Q2

    Explain the problem of full utilisation of resources.

    Marks:3
    Answer:

    The problem of full utilisation of resources implies, “Making best use of available scarce resources", which includes:

    • There should be no wastage of scarce resource
    • There should be no underemployment or unemployment

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  • Q3

    Write down the differences between free price mechanism and controlled price mechanism.

    Marks:2
    Answer:

    The differences between free price mechanism and controlled price mechanism are as follows:

    Free Price Mechanism Controlled Price Mechanism
    It refers to an uninterrupted movement of demand and supply which determines the prices of goods & services. It refers to an administered price mechanism by the central planning authority.
    It is relevant for a capitalist economy. It is relevant for a socialist economy.
    There is no interference of the government. The government interferes in the decision making process.

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  • Q4

    What do you mean by labour intensive technique and capital intensive technique of production?

    Marks:2
    Answer:

    Labour intensive technique of production relatively employs more labour and less capital and Capital intensive technique of production relatively employ more of capital and less Labour.

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  • Q5

    What are the basic economic problems?

    Marks:1
    Answer:

    The basic economic problems are what to produce, how to produce and for whom to produce.

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