Every society irrespective of the type of economic system adopted; whether capitalism or socialism, is faced with the following basic fundamental economic problems:
What To Produce
Every society is faced with the first problem of determining what goods and services to be produced and the quantity that are to be produced. This problem arises mainly as a result of the fee that human wants are unlimited and insatiable relative to the available resources.
Problem therefore arises over which of these wants should goods and services be produced to satisfy. The question will be, should more food be produced in order to feed the teeming population or should more arms and ammunitions be produced in order to strengthen the defence of the society’s territory.
Therefore choice has to be made of which of these goods to be produced. Production of one of these commodities in large quantity will definitely lead to production of the others in small quantity.
The economic system the society adopts goes a long way in determining the type and quantity of goods and services that should be produced, In a capitalist society, the price system determines the type and quantity of goods and services that are to be produced. Profit motive is the guiding principle. High price that will assure of more profits lead to increase in the production of more goods and services and vice versa.
On the other hand, in a socialist society the government decides what is to be produced. In spite of that, good and services are produced with the sole aim of satisfying the want of the whole citizens of the society as opposed to the profits they will fetch.
How To Produce
The next problem is determining how to go about producing those commodities chosen for production. The decision to produce involves determining the resources to be used, those to produce these commodities and the production techniques or methods to be used. The type of economic system adopted tends to answer the above questions.
While private individuals and private resources are mainly used in a capitalist or free enterprise system, in a socralist or centrally planned economic system, production is carried out by the state and public resources are used.
For Whom To Produce
The next basic economic problem is determination of who will enjoy the goods and services produced. Irrespective of the type of economic system adopted, goods and services are produced mainly to satisfy human wants.
However, the economic system a society adopts has a lot to do with the enjoyment of goods and services. While one’s income determines the type and quantity of goods and services the person enjoys in a capitalist system, in a socialist system goods and services are distributed and enjoyed according to needs and individual’s contributions.
Efficiency Of Resources Use
Since the resources available in the society are limited relative to demand for them, it therefore makes economic sense if these limited resources are efficiently used.
It becomes a problem on how to use these limited available resources efficiently in order to ensure maximum outputs. lf maximum output is obtained from limited available resources, we can say that resources were efhciently used.
A solution has to be found on how to make factors of production (land, labour, capital and entrepreneur) more efficient.