The economic problem facing human societies today is what economists are trying to solve, and the economic problem lies in the gap between limited resources and unlimited human desires, so attempts are made to seek to find a balance between desires and resources and to achieve optimal exploitation of resources to implement the best desires and achieve priorities, and this article presents the concept of the problem. The economic and the relationship of the economic problem to the opportunity cost, the causes of the economic problem, the solutions of the economic systems to the economic problem and the questions of the scientist Samuelson to solve the economic problem.
What is the economic problem?
The economic problem, or what is also called the scarcity problem, is a problem related to how to use limited or scarce resources that can be exhausted to meet the unlimited needs and desires of society, which means that there is no limit to the amount of goods and services that people want to consume, and this requires taking decisions about how to allocate and use resources efficiently in order to meet basic needs and as many additional needs as possible.
Economic problem and opportunity cost
The economic problem relates to the gap between limited and scarce resources and unlimited needs and desires, and therefore these scarce resources must be optimally exploited by choosing among competing alternatives, and these alternatives entail the opportunity cost, i.e., the cost due to sacrificing the other option due to the achievement of one of the options or alternatives. Because there is a cost to choice, individuals must choose the best way to use their skills and efforts, companies and establishments must choose the best way to use their workers and machines, and the government must choose the best way to use taxpayer money. Making an economic choice leads to sacrifice
What are the causes of the economic problem?
There are three main reasons for the existence of the economic problem, as follows:
Scarcity of resources
One of the most important reasons for the existence of the economic problem is that the various resources such as land, labor, capital, and others are limited, and the problem of scarcity in resources is global and applies to all individuals, organizations, and countries. For this reason, no economy can produce everything that people want and need, although there will be no economic problem if the various resources are not scarce.
Unlimited human wants
Human desires never end because this is human nature, so desires cannot be completely satisfied because once one desire is satisfied, another new desire will appear that needs to be satisfied, and because people’s desires are unlimited and continue to multiply, therefore, they cannot be satisfied due to limited resources, and it is also noted that human needs differ in priorities due to the different intensity of desires for individuals, that is, some desires are more important and urgent for one group than another, and for this reason people allocate their resources according to preference to satisfy some of their desires; if all human desires were of equal importance, it would be impossible to choose between them, because they are all of equal importance.
Alternate Uses
Because the resources are not only scarce but can be exploited for different uses, the selection process among the resources is very important. For example, petroleum products are not only used in vehicles but are also used to run machines and generators, and as a result, the economy must choose between alternative uses of certain resources. and bear the costs of this choice.
What are the solutions of economic systems to the economic problem?
Because of the uneven distribution of natural resources, the scarcity of these resources, and the existence of unlimited wants and needs in society, all of this hinders the production of goods and services in the economy. Therefore, the economic systems, namely the capitalist, socialist, and mixed systems, see the need to find optimal solutions to these problems, each according to his opinion, and all systems use one of the two important ways to solve this problem and other economic problems, namely the method of adopting the free pricing mechanism and the method of the controlled price system or state intervention. The following is an explanation of the solutions provided by the economic systems to the economic problem:
The capitalist system’s solutions to the economic problem
The capitalist system sees that the cause of the economic problem is the limited resources and lack of productive factors, as well as the existence of unlimited human desires, so the capitalist system sees that the solution to the economic problem lies in the optimal distribution of resources on the basis of the allocation of different resources by adopting the free pricing mechanism, where the prices of various goods and services are determined. including the price of factors of production with the help of forces of supply and demand.
The free pricing mechanism helps producers determine the quality of production, i.e., the most demanded goods are produced, on which consumers can spend more and buy more from them than on the quantities of goods and services that have low demand in the market. factors or techniques that have a relatively lower price in the market, and it should be noted that the free pricing mechanism on which the capitalist system relies as a solution to the economic problem works well only in the case of free competition and no disturbance to the natural flow between demand and supply of goods, i.e., no interference in markets from any party.
The socialist system’s solutions to the economic problem
As for the socialist system, the economic problem occurs due to the lack of justice and efficiency in the production and distribution processes. The socialist system emerged as a reaction to the negative effects of the capitalist system. Therefore, under the socialist system, the government plays an important role in decision-making by undertaking the planning, monitoring, and regulation of all activities. The major economic policies are designed to solve the economic problem, and all major economic policies are formulated and implemented by the Central Planning Organization.
The socialist system uses the method of the controlled price system or state intervention as a solution to the economic problem. This is done through the central planning authority taking the decision regarding the nature of goods and services that will be produced according to the available resources and the priority of the state, and resources are allocated in larger amounts to the basic commodities of the state. One of the goals of the socialist system is to achieve growth, equality, and price stability in the country, and these goals are achieved through the government’s implementation of financial policies such as tax policy, spending policy, public debt policy, and deficit financing policy. Production methods or production techniques are determined and chosen by the central planning authority through its decision-making as to whether to use labor-intensive or capital-intensive production technology.
When determining the appropriate method of production, the social and economic conditions of the economy are taken into consideration, and it is noted that under the socialist system, each government aims to achieve social justice through its work and its possession of all economic resources, and people can work for wages regulated by the government according to the efficiency of work, and the earned income determines the total demand in the economy, which helps the government in evaluating the demand for goods and services by different income groups.
Mixed system solutions to the economic problem
Practically there is neither a capitalist system nor a socialist system in general, as both economic systems have restrictions, and therefore a new economic system emerged as a mixture of the capitalist and socialist systems called the mixed system, which is defined as an economic system in which the private and public sectors coexist and work side by side in order to achieve the welfare of the state and find solutions to the economic problem.
Under the mixed economy, the economic problem is solved with the help of the free pricing mechanism and the method of the controlled price system or the intervention of the state together, as the free pricing mechanism works within the private sector and then prices are allowed to change according to the demand and supply of goods, so the private sector can produce goods according to demand and price in the market, and the government can control and regulate the production of the private sector through its monetary or fiscal policy, and the controlled price system, i.e., the economic planning of the public sector, is used by the planning authority for goods and services to be produced in the public sector, and determined by the central planning authority, is used by the planning authority for goods and services to be produced in the public sector, is used by the central planning authority, and is used by the
The private sector determines the production technique or method of production in its sector on the basis of the prices of the productive factors, and the public sector is determined by the central planning authority.
In order to achieve the goal of distributing resources in an optimal way, the private sector allocates its resources to produce goods that are demanded by people who have high purchasing power. The free pricing mechanism is determined by the purchasing power of the low-income group, and therefore the government may be forced to produce some goods. A policy of rationing is introduced to provide basic goods at reasonable prices to the poor, and thus the government guarantees social justice through its actions in the mixed system.
What are Samuelson’s questions to solve the economic problem?
Economics is concerned with dealing with how resources are allocated in society to achieve the most efficient and equitable use of resources, and Paul Samuelson is credited with being the first Nobel Prize winner in economics to provide the first clear and simple explanation of the economic problem, that is, in order to solve the economic problem, societies must seek to answer three basic questions: what do we produce, how do we produce it, and for whom do we produce it? The following is a statement:
What to produce?
Societies have to decide the best combination of goods and services to satisfy the diverse wants and needs of their people, and they must also decide the different amounts of resources that should be allocated to these goods and services.
How to produce?
Societies must decide on the best combination of factors and mechanisms for creating the desired output of goods and services, for example, knowing how much land, labor, and capital should be used to produce consumer goods such as computers and cars, i.e., knowing exactly how each good is produced and its resource needs.
For whom to produce?
All societies need to determine who will benefit from the output of their economic activity and how much they will receive; this is called the problem of post-production distribution.
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