Hello Students, In today's class we will discuss all these points :
Types of economy 00:50
Market Economy 01:40
Centrally Planned Economy 02:30
Mixed Economy 02:50

New Session 2022 2023 Economics According to new CBSE Syllabus, Microeconomics Chapter 1 Economics and Economy Part 1 Meaning of Economics

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CENTRAL PROBLEMS OF AN ECONOMY
WHAT IS AN ECONOMIC PROBLEM?
CENTRAL PROBLEMS OF AN ECONOMY
Speaker Pankaj Raikwar
SESSION 202223
CHAPTER 2
1. WHAT IS AN ECONOMIC PROBLEM ?
Wants of human beings are unlimited but the means of satisfying these wants are scarce.
What Causes Economic Problem?
(1) Unlimited Wants:
Human wants are unlimited. No man can satisfy all his wants fully. Wants of all members of the
society cannot be fully satisfied at a given time.
(2) Limited or Scarce Means:
Most of the goods and services satisfying human wants are limited or scarce. These goods are called
scarce because their demand is greater than their supply, no matter what the price is.
(3) Alternative Uses:
Another cause of economic problem is that the limited resources have alternative uses. For
instance, milk is a scarce commodity It can be used for preparing cheese, ice cream, rasgullah, etc.
2. CENTRAL PROBLEMS OF AN ECONOMY
( l) What to Produce?
(i) What to produce, and
(ii) How much to produce.
(1) What is Produced and in What Quantities
Firstly, the economy has to decide what goods and services are to be produced. For instance,
which of the consumer goods like sugar, cloth, wheat, ghee, etc., are to be produced and which of
the capital goods like machines, tractors, etc., are to be produced. Similarly, choice has also to be
made between the production of war time goods like rifles, guns, tanks and peace time goods like
bread or butter.
When an economy has taken a decision as to what goods or services are to be produced, then it
has to decide about its quantity. How much of consumer goods and how much of capital goods
are to be produced. For instance, if an economy decides to produce more of cloth and wheat
within a given period and with limited means, then it will have to produce less of machines.
(2) How to Produce?
2. How are these goods produced : The second main problem of an economy is: how to produce
goods or how to organise production? This problem is concerned with the choice of technique of
production. For example, production of cloth is possible either by handlooms or by modern
machines. This problem is concerned with the efficient use of resources. It implies more
production at less cost.
Techniques of Production
Labour Intensive Capital Intensive
(3) For Whom to Produce?
Owing to limited resources, an economy cannot produce goods for all
sections of the society to the extent desired. Broadly, every economy has
two sections of the society:
(i) the rich, and
(ii) the poor.
3. For Whom are these goods produced : Owing to limited resources, an economy cannot
produce goods for all sections of the society to the extent desired.
Broadly, every economy has two sections of the society: (i) the rich, and (ii) the poor.
Social justice is promoted if more goods are produced for the poor. It would reduce inequality or
promote equality. But, there is a hidden cost of doing it. By producing goods for the poor, the
profits of the producers would remain low. Low profits would mean low investment. Implying low
GDP growth.

Organisation/Solution of
Central Problems in Different Economies
Market Economy
Centrally Planned Economy
Mixed Economy
(a) Market Economy : Market economy is a free economy. It means that producers are free to decide ‘what, how and for whom
’ to produce. Producers will choose to produce those goods the prices of which are relatively high. So
that, their profits are maximised. Because they are interested in maximising their profit.
(b) Centrally planned economy : In a centrally planned economy, decisions relating to what, how and for whom
’ to produce are taken by some central authority appointed by the government of
the country. All decisions are taken with a view to maximising social welfare.

(c) Mixed Economy : Mixed economy combines the merits and avoids the demerits of market and centrally planned economies. Decisions regarding
what, how and for whom to produce are taken on the basis of market forces as well as on the basis of social considerations.

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