Friday, 19 June 2015

Allocation of Resources and other major economic problems

Why allocation of resources is important?
The problem or need for allocation arises due to two facts:
a) that resources are not sufficient in any economy and 
b) each resource or factor of production has varying uses. 
So it becomes necessary to efficiently utilise the available resources to their best possible results by choosing among their varying uses and combinations.

It is a known fact that no economy can be fully equipped on its own in meeting out all its demands or in satisfying all the needs of its consumers. Wants are innumerable and varying. Different wants need different products or services to satisfy them. And they require necessary resources or inputs for producing those goods and services. But no country can produce on its own all the services and goods required by it nor do they possess all the resources required for producing them. Each one has to depend on its neighbouring state for something or other of its needs and resources. So, a best economy is one which tries to meet all its needs through a better management and efficient allocation of resources to their best and utmost use, thereby depending very rarely on other countries.

As we know, allocation of resources to their best optimum uses is a very great challenging problem. For this purpose you should collect vast details of the nature of resources and their varying qualities and probable ways of using them for producing the required goods and services to obtain maximum beneficial results.You should think in terms of whatever combinations of resources can be tried upon to produce the required maximum beneficial results.

The major economic problems faced and dealt with by any Economy are as follows:-

1) Availability of resources
What are the resources available in the economy? Does the economy have sufficient stocks of all resources required in producing its goods and services? Water, power, minerals, fuel stocks, land and man power are some of the major requirements for producing any goods or services. Does the country possess all these resources? To how much extent it has these stocks?

2) Locating the needs and wants of consumers
For producing goods and services, you should first know about the needs and wants of people and the quantum of those demands. Only when you know about locating the needs and wants in marketing, can you start thinking of allocating the resources for their production. Then you will come to know of the gaps between needs and available resources.

3) Knowledge about ways and means of producing goods and services
Once you know about the demands for goods and services, you will get a picture of what is to be produced. Then, you should think of the ways of producing the goods and services that are needed.
You should ponder over different methods of producing goods and services by using different combinations of resources. A same product is produced using different combinations of materials, labour and power. So, you should decide about the combinations possible.

4) Locating priorities for production
You should think about preferences in the order of producing goods and services. Which goods and services need to be produced with more emergency and importance over others? And which class of consumers or regions of demand need more attention than others? You must decide whether you feel food grains and medicines as more important than beverages, garments and electronic goods or vice versa.

5) How much to produce of each item?
Then, you need to decide upon how much of each particular item to be produced considering the repetitive demands for many goods and services on regular basis due to the recurring nature of wants. For example food and water are recurring and continuous requirements. So, they need to be produced in vast quantities. Cars and bikes are not so much demanded and so produced in lesser quantities. Even among cars certain models and brands are too costly and not demanded by many. So, you have to know how much to produce of each item. Research on which item requires to be produced more and which in lesser quantities.

6) Factors of Production and choice making
We need to make decisions regarding which factor of production is to be used and in what mix ratio. For example, farming can be done on a land either by using manual labour or with the help of mechanised process. Water can be supplied by digging bore wells or by supplies through river canals or even through water tankers. So, you decide the means of production.

7) Dealing with scarcity of resources
How to deal with the problem of scarcity? There two ways of dealing with scarcity as mentioned below.
  • Scarcity leads to choice among available alternatives and also in full utilisation of available resources. So, you can minimise the bad effects of scarcity of resources by choosing the right product or service at the right time that fits into your most urgent needs and demands. By doing so you are further able to put your resources in use to their full satisfaction/ utilisation level. As a consumer, you will buy what is more important that can give maximum satisfaction to you. As a producer, you will produce those goods and services that are most demanded by consumers and which result in most perfect combination of resources thereby increasing your profits also.
  • The other solution to scarcity is growth of resources. Inventing new fields of resources by continuous research and experimentation. Any kind of resource like land, labour, mines and capital are always prone to expansion through continuous explorations.
So, these are some of the major economic problems faced by any kind of economy which need to be given utmost attention, whether it is capitalist, planned or mixed economy. Allocation of resources to their best combinations and utmost uses along with efficient management of resources by using them to their full extent and contributing to the growth of resources are some of the best ways of tackling this problem.