What is the problem of Resource Allocation

Answer :

The problem of resource allocation refers to the problem of rational management of resources, or is the problem of allocating resources to different uses in a manner such that scarce resources are optimally utilized.

The problem arises because resources are scarce and have alternative uses.

How is “choice” a core parameter in the study of economics ?

Answer :

Due to the scarcity of resources and resources has alternative uses; we are facing the Problem of choice. It is the problem of allocating scarce resources to alternative uses.

For example: Land (a scarce means of production) can be put to alternative uses, you can build factories on it or construct houses or grow crops on it or covert it into a playground.

Problem of choice or the problem of allocation of resources to alternative uses is the basic economic problem. This is the root cause of emergence of economics as a subject matter of study.

Economics is concerned with the study and solution of economic problems in a manner such that the individuals (at micro levels) are able to maximize their gains, and the society (at macro levels) as a whole is able to maximize its social welfare.

Why does an economic problem arise?

Answer :

Human wants are unlimited, no matter how rich we are, the available resources are never enough to fulfill our needs.

Also the resources available (land, labor, capital and entrepreneur) are scarce and also have alternative uses.

These two conditions lead to the problem of choice or the problem of allocation of resources to alternative uses. This is the basic economic problem.

Central Problem of an economy

Introduction :

No matter how rich we are, the available resources are never enough to satisfy our never ending needs so it is rightly said “Needs always outpace our means”.

Also scarcity of resources is a hard reality Resources are not only scarce, but have alternative uses as well.

For example: Land (a scarce means of production) can be put to alternative uses, you can build factories on it or construct houses or grow crops on it or covert it into a playground.

Due to the scarcity of resources and resources has alternative uses, we are facing the Problem of choice. It is the problem of allocating scarce resources(land) to alternative uses (factories, houses, crops or playground).

Monetary Policy – Qualitative Instruments to control money supply

Selective or Qualitative methods of credit control aim at regulating and controlling the allocation of credit among various users rather than influencing the general availability of credit.

These are broadly explained below:

1) Margin Requirement:

The commercial banks generally give loans to their customers against some securities. They do not give loans equal to the full amount of the value of security, but of an amount which is less than its value.

The margin requirement of loans refers to the difference between the current value of the security offered for loans and the value of loans granted.

How does the Central Bank control Flow of Credit - Monetary Policy

Management of money supply is an important function of Central bank. High fluctuations in the volume of money (money supply) create the problems of inflation (excess demand) and deflation (deficient demand)

The central bank uses the Monetary Policy / Credit Policy for monetary management.

Monetary Policy is the policy of the central bank to regulate the availability, cost and use of money for achieving certain given objectives of the economic policy.