The main issues of the economy, their solutions
It is not known who first formulated the main issues of the economy, but it is unambiguously clear that they stood before humanity from the very first manufactured labor instrument. What to do (ax or hoe), how to do (using only wood or using wood and stone) who will end up (the strongest or the most dexterous). These three major economic issues were born with humanity. And the correct answers to these questions still determine the paths for the development of the world economy.
Trio in economics
The choice of acceptable solutions lies at the heart of any management decision. And the correct formulation of the questions facing society is no less important stimuli for development than the answers to them.
Modern social studies have identified the main issues of economics as follows:
- what to produce and in what quantity: in most cases it is not necessary to make a choice from extreme decisions - guns or oil, but before any manufacturer there is a question,how to choose products for production and how much to produce in order to meet the demand as much as possible, but to prevent overproduction;
- how to do it: the difficult question of the choice of technology, the way of organization, taking into account available resources and other factors;
- how to distribute, for whom to produce: not everything is still bought for money, some of the benefits are not redistributed by the market in favor of the least protected segments of the population.
Basically, market mechanisms are involved in resolving these issues, but with the development of technology and increasing labor productivity, planning elements are increasingly used.
What to do?
Making decisions about the production of a particular type of product, even at the level of a small company, is difficult and responsible. The company must properly allocate the available resources and determine the possible production volumes, based on the forecast demand for its products. The task at the country level is complicated many times, given the same resource constraints. It is necessary to produce thousands of products to maintain the life of society.At the same time, the production of some types of products can often be achieved only by reducing others.
This is one of the main questions of the economy (what to produce) countries have sometimes decided radically. The Soviet Union in the 1930s and South Korea in the 1960s, the first in planned conditions, and the second in a market economy, carried out the industrialization of their countries. Most of the resources were concentrated in heavy industry to the detriment of other industries and the standard of living of the population. Despite the fact that countries treated different forms of economic management, how to solve the main issues of the economy, they solved mainly by reducing the consumption of their people.
How much to produce
In the ideal case of a competitive market, the volume of production is regulated by supply and demand. A conditional consumer has the opportunity, without administrative pressure, to buy goods or services on the basis of free choice. With a sufficiently large number of such consumers, the goods are quickly sold out. Vendors (and ultimately the manufacturer) receive a signal of increased demand.And on the resources obtained through sales, increasing production. Thus, in a market economy, the question is how much to produce. Sometimes, however, the signals are distorted or later reach, then overproduction occurs.
How to produce
The choice (how to produce) is narrowed down when determining the type of product and volume of production. Production of the same liquefied natural gas so far depends only on the accepted volume of production, as well as the production of large-tonnage chemical products (for example, mineral fertilizers). But still, in most cases there is the possibility of choosing the technology and method of production, including the degree of automation. More developed countries often gain a competitive advantage using more modern technologies, which allows them to produce more modern products at lower costs. At the same time, companies from less developed countries can profitably use “old” technologies if there is no need to compete with global corporations. Therefore, the choice (how to produce) is not obvious in this case either.
How to distribute
The main question of the market economy: for whom to produce, that is, who will be the final consumer of the goods. Most products in the world are distributed by the market. Who will get one or another product is determined by the free choice and the ability of the consumer to pay the required price, the choice ultimately depends on income. Demand determines what and how much to produce, because limited resources make it too expensive to overproduce a commodity. Not all product distribution issues can be solved in a market way. Therefore, countries, especially developed ones, use a direct distribution of wealth to solve social problems.
Is it possible to optimize production
Not long ago, a number of countries with a planned economy tried to find solutions to the main issues of the economy centrally, while the main question was: "What to do?" Tried to count what and how much to produce. Therefore, factories and factories were loaded, but they did not always produce what was in demand. As a result, all countries of the world returned to the definition of product demand, focusing on supply and demand.
Making decisions about the production of a particular product at the level of a large company, and even more so a global corporation, has a complex multi-stage character with planning elements. Producers are guided by the results of market research, cost analysis for production and promotion of products, forecasting, and often the possibility of generating demand. And based on the results of comprehensive research, a decision is made on production.
The level of development of countries is so different that even in one country, production methods from different centuries may coexist. From the latest digital technology to the "grandfathers" manual production methods. As for example, in India, one of the most advanced countries in the world in the field of software development, where science cities of information technologies and clans of laundresses and garbage collectors, which (like a hundred years ago) do everything manually, adjoin. Therefore, the thesis that market demand stimulates the use of new technologies is not always obvious.
Naturally, in each case, the production technology will be selected,which will allow to produce a product with minimal costs and taking into account local traditions and production methods. Hundreds of scientific and technical consultants work in each industry to help select the mode of production and its efficiency. The solution of the second of the main issues of the economy will be dealt with by more and more specialists, this is one of the fastest growing and sought-after activities.
How products are distributed
The times when it was thought that the omnipotent hand of the free market would be able to solve all the distribution issues were gone irretrievably. The scheme, when the demand determined where the resources would go for production, and then only those who were able to pay for it received the product, are now working in the poorest countries of the world. In most countries of the world, consumption along with market mechanisms is also regulated by public demand. And the richest countries already have the ability and guarantee unconditional income to their citizens, sufficient to meet basic needs. Many economists expect that the fourth industrial revolution will increase productivity and reduce costs so that it will provide an opportunity to meet the basic needs of the individual free of charge.Optimization of production will allow to remove resource constraints on meeting needs. What are the main issues of the economy then? Time will tell.