State any two central problems under ‘problem of allocation of resources’.

Production, consumption, distribution and exchange are the basic economic activities. Central problems are concerned with the use of material resources to satisfy human wants. The main reasons for the occurrence of central economic problems are:

• Unlimited human wants

• Limited availability of resources

• Alternative uses of resources

This results in a situation of how to use scarce resources to attain maximum satisfaction. These problems are generally called the ‘central economic problems’. It is faced equally by every economy- whether developed or developing.

The problem of allocation of resources is popularly known as the problem of what to produce and in what quantities. It is popularly described as choosing between ‘guns or butter’. The economy has to decide on how much goods/services the economy will produce and its quantity. The choice between necessities or luxuries; agricultural goods or industrial goods; war goods or consumption goods and consumer goods or capital goods must be made. Also, the economy has to choose between the different services to be rendered- education or health care; tourism or transportation; communication or banking services.

The goods will be produced depending on the requirement of the good in the economy. It will change according to different economies. The quantity of production will be decided on the basis of the intensity of requirement; goods in higher demand will be produced more compared to others.