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Poverty

Poverty
Concept of Poverty

Poverty can be understood in many ways. Simply speaking, poverty is a social phenomenon in which a section of the society is unable to fulfill even its basic necessities of life. The World Bank defines poverty as inability of people to attain a minimum standard of living. In another notion of poverty line, a critical threshold of income, consumption, or more generally access to goods and service is determined and below which individuals are declared to be poor. In recent definitions, poverty is not just a matter of low income; it is also a question of the poor having few economic opportunities, insecurity in the face of financial and other risks, lack of empowerment, lack of capabilities and freedom. Degree of poverty can be observed even in attitude, culture and environment of a society.

Types of Poverty

Absolute and Relative Poverty

Though poverty is a qualitative phenomenon, it can be classified into absolute and relative terms by using indirect tools of statistics. If the people do not have adequate nutrition, housing, and access to basic health and education, they are called absolute poor. It means absolute poor are those who are unable to fulfill their basic needs or they lie under a minimum specified level of income or consumption. As living standards rise and absolute poverty recedes, social concerns focus on those living in what is recognized as poverty relative to a country's average living standards. Thus, relatively poor are those whose income is below the average of others and above the absolute poverty in the line in the society.

  • Absolute Poverty
The term 'absolute poverty' refers to that the level of poverty which can not be compared between or among the citizens of nations. It is measured independently analyzing the variables of basic needs. It is defined as the situation in which citizens of a nation deprive from basic needs such as food, shelter, clothes, safe drinking water, sanitation, primary health, and basic education, permanent source of income and employment and productive land with them. Supply of these things is most essential for the survival of human beings but under this poverty one cannot fulfill those things as it is required for the subsistence living. People compelled to survive under absolute poverty cannot achieve 2100 calorie intake from their consumption items in a day.

  • Relative Poverty
The word 'relative' means related or based or compared with some variable or issues. Likewise, relative poverty refers to that state of poverty which is measured or accounted from the comparative study between or among interrelated economic variables. Basically, relative poverty is measure by making comparison in income, expenditure, saving, investment, purchasing power and living standard of the citizens living in a country in a particular unit of time or duration of time. The comparison may take place between person to person, family to family, society to society and even nation to nation.


Characteristics of Developing Countries

Characteristics of Developing Countries
Developing countries are also called poor countries. Sometimes they are often called underdeveloped economics. According to the UN criteria, countries with less than $400 level of per capita income countries are designated as low income countries and countries with less than $750 per capita income as called less developed economics. The following are the main characteristics of developing countries:

General Poverty

Developing countries are poor. By definition, GDP and Per Capita Income are at low level. General living standard of people in these countries is very slow. Poverty is visibly disturbing every aspect of life. General health services for people is insignificant. The life expectancy at birth does not exceeds 60 years.

High Dependence on Agriculture

Agriculture is the main occupation in developing countries. More than 70 percent of active labor force is engaged in this primary sector. Population increases and the increased labor stick to agriculture thereby over burdening the firm size. There is low output per head.

Underutilized Natural Resources

Most of the developing countries are rich in natural resources. However, their exploration and exploitation is limited. Sometimes, foreign companies control them. Generally, raw products are exported at low prices.

Lack of Industries and Enterprises
Characteristics of Developing Countries
The industrial sector in developing countries is at the primary stage of development. Its contribution to GDP is less than 10% employing 2 to 4% of the labor force. Industrial growth is very slow.

Lack of Capital and Technology

Capital deficiency is another common problem of developing countries. Because the countries are poor, they save less which results in low capital formation. They possess less investment capital. In addition their existing technology is old and unproductive.

Lack of Basic Infrastructures

The factors that help for development are called infrastructures. Good road system, highways, telephone, services, big dams and canals, banks and financial services are some examples of the necessary infrastructures.

Vicious Circle of Poverty

Developing countries are poor. They have low per capita income. Low income means less saving, that is less capital and less investment. Low investment leads to less production that means low income. The vicious circle of poverty is complete. It proves that a poor country is poor because it is poor. It is better understood from the following relation:

Low Investment-Low Production-Low Capital-Low Investment-Low Production-Low Income

Demographic Characteristics

There is high growth rate of population in developing countries. It is as high as 3 percent per annum. Children under the age of 15 constitutes a large proportion, generally more than 40 percent of the total population. Together these two age groups from about 45 percent of the population. Because these groups are economically inactive, they have to depend on the family.


Socio-cultural Characteristics

Different kinds of social groups reside in a country. They differ in terms of religion, castes, and creeds, cultures and customs, languages and beliefs, etc. Such social and cultural values have deep impact in the economy of a nation, Developing countries barbour may discordant social patterns in their economic life.

Dualistic Economy

All the sectors of economy have not been developed in developing countries. Employment opportunities or activities exists in urban areas whereas traditional production method is used in rural areas. Employment opportunities are less. Hence, these countries have dualistic economy which results in various problems with formulating economic policies.

Indicators of Economic Development

http://www.economydetail.blogspot.comMeasurement of economic development and express in definite index is very difficult task in economics. So many opinions are found to indicate level of economic development of a nation. However, some common and popular indicators that used to measure development are discussed below:

Volume of Per Capita Income

Per Capita Income is first and most important indicators of economic development of a nation. It is commonly used by all nations in the world along with UN while measuring economic position of the nation. The PCI of Least Developed Countries (LDCs) is less than $400. There are 49 countries LDCs across the globe.

Rise in Factor Productivity

Development means rise in production and productivity of factors of production. Productivity implies increased per unit of production of factors of production land, labor, capital and organization in terms of rent, wages, interest and profit.

Rise in Living Standard

Another indicator of development is living standard of common people which should go on rising to higher levels. The very objective of development is to provide better life to people. It refers to increase in average consumption level of individual and society.

Physical Quality of Life Index

Physical Quality of Life Index is a common indicator of development. It is computed from life expectancy at birth, infant mortality rate and literacy rate of a country. If people live longer and are literate, PQLI value will be high. It is measured in scale of 1 to 100.

Human Development Index

The Human Development Index as an indicator was introduced by UNDP in the World Human Development Report in 1990. Since then, it has been the most popular indicator of development. Its range of measurement is in between 0 to 1.


Poverty Alleviation and Inequality Reduction

As a nation develops, poverty must be reduced and the gap between the rich and poor must be narrowed down . Poverty limits opportunities of common people to uplift their life. It weakens their income earning capability. Their access to health, education and skill development is most essential to minimize poverty rate.

Economic Growth and Development

Economic Growth and Development
Economic Growth

An exact definition of economic growth has not been developed yet. However, it is defined as an increase in aggregate output of goods and services in a country during a given period of time.

In the words of Kuznet,"Economic growth is a long-term rise in the capacity to supply increasingly diversified economic goods and services to its population.

Economic Development

The concept of economic development changes along with changes in human attitudes, behaviour and activities. The definition given in a special period may not be suitable for another period. Hence, it is a dynamic subject of study. Economic development in the decade of 1950, compared in terms of per capita income. Similarly, in the decade of 1960, it was linked with human resource development.

Economic Development:Meaning and Indicators

Economic Development:Meaning and IndicatorsLiberty from poverty is the essence of development. A better society with modern amenities where individuals enjoy quantitatively higher life and a dignified nation committed to sustained and advanced standard of living for longer period for a longer segments of the people are the concerned of economic development.
According to Adam Smith, "Development as an inquiry into the nature and causes of wealth of nation and their rise."
Similarly, Karl Marx defined,"Development in terms of fair share of national income for all including workers."
M.P. Todaro defined, "Development as in terms of three values
  • Life Sustance
  • Freedom of Choice;
  • Self-Esteem.

Life Sustance

It means that the basic amenities like food, clothing, shelter, health, education, etc. It means availability of basic amenities to everyone.

Freedom of Choice

means freedom from hunger deprivation, destitution. Choice means expansion of capacity to choose different life patterns and way of living.

Self-Esteem

It means dignity of a person.

Development means raising level of living standard of the common people, per capita income to be able to choose a better alternatives to live in society. As a policy, it means creating new and better opportunities of employment and reduction inequality.

Recently, UN defined development as;

  • Equality
A nation is supposed to be economically developed, if there is:
  1. Equal employment opportunities;

  2. Equal burden of taxation;

  3. Equal credit facility.
  • Sustainability

A nation is supposed to be economically developed, if there is:

  1. Long lasting development in financial sector;
  2. Long lasting development in environment;
  3. Long lasting development in physical infrastructures.
  • Productivity
A nation is supposed to be economically developed, if there is high amount of factor income of all factors of production.
  • Employment
A nation is supposed to be economically developed, if there is:
  1. Political freedom;
  2. Women empowerment;
  3. Public participation in development;
  4. Human rights.

Definition of the Economics

Economics is the branch of social science which deals with production, distribution and consumption of available goods and services and their proper management. So, economics deals with the trade cycle, production, distribution, comsumption of goods and services in a systematic manner. Adam Smith (1723-1790), was consider as the "Father of Economics". He published his book entitled "The Wealth of Nations" in 1776. In this book he also talks about the "invisible hands". After the publication of the book entitled "The Wealth of Nations", he was become the most famous person and become the leader of classic ecomic period. In which he give the first concept of economics and it's importance to the human beings. In this book he emphasized the social human behaviour and his social activities with rational behaviour. He was the leader of classical economists. Since Smith's book was publishd he was famous for more than a century. It means that, he wasn't critisized till hundred years. Aftrewards, he was criticized in 1890, after another well functioned definition was published. And, starts middle age of the development of economics, which was lasted in 1932, when modern era of economices come into existance.

Difficulties in Measuring National Income

Difficulties in Measuring National Income
There are many difficulties in measuring national income of a country accurately. The difficulties involved in national income accounting are both conceptual and statical in nature. Some of these difficulties involved in the measurement of national income are discussed below:

Non Monetary Transactions

The first problem in National Income accounting relates to the treatment of non-monetary transactions such as the services of housewives to the members of the families. For example, if a man employees a maid servant for household work, payment to her will appear as a positive item in the national income. But, if the man were to marry to the maid servant, she would performing the same job as before but without any extra payments. In this case, the national income will decrease as her services performed remains the same as before.

Problem of Double Counting

Only final goods and services should be included in the national income accounting. But, it is very difficult to distinguish between final goods and intermediate goods and services. An intermediate goods and service used for final consumption. The difference between final goods and services and intermediate goods and services depends on the use of those goods and services so there are possibilities of double counting.

The Underground Economy

The underground economy consists of illegal and uncleared transactions where the goods and services are themselves illegal such as drugs, gambling, smuggling, and prostitution. Since, these incomes are not included in the national income, the national income seems to be less than the actual amount as they are not included in the accounting.

Petty Production

There are large numbers of petty producers and it is difficult to include their production in national income because they do not maintain any account.

Public Services

Another problem is whether the public services like general administration, police, army services, should be included in national income or not. It is very difficult to evaluate such services.

Transfer Payments

Individual get pension, unemployment allowance and interest on public loans, but these payments creates difficulty in the measurement of national income. These earnings are a part of individual income and they are also a part of government expenditures.

Capital Gains or Loss

When the market prices of capital assets change the owners make capital gains or loss such gains or losses are not included in national income.

Price Changes

National income is the money value of goods and services. Money value depends on market price, which often changes. The problem of changing prices is one of the major problems of national income accounting. Due to price rises the value of national income for particular year appends to increase even when the production is decreasing.

Wages and Salaries paid in Kind

Additional payments made in kind may not be included in national income. But, the facilities given in kind are calculated as the supplements of wages and salaries on the income side.

Illiteracy and Ignorance

The main problem is whether to include the income generated within the country or even generated abroad in national income and which method should be used in the measurement of national income.

Besides these, the following points are also represents the difficulties in national income accounting:

  • Second hand transactions;
  • Environment damages;
  • Calculation of depreciation;
  • Inadequate and unreliable statistics; etc.


Product Approach of NI Accounting

According to this method, national income is measured in the form of total product obtained from each economic sector such as primary, secondary and tertiary sectors. The product approach consists the following:

Primary Sector

It includes agriculture based productions like fishery, forestry, and other production activities.

Secondary Sector

It includes manufacturing, electricity, water supply and such other public welfare activities.

Tertiary Sector

It includes banking, insurance, transport and communication, defense, administration and such other institutions. Thus,

GDI=Total Production of (Primary+Secondary+Tertiary)sector
GNP=GDP+NFIA

In order to solve this problem, we can either of use the following two methods:

Final Product Method

GNP is the money value of final goods and services produced during a year. So, national income is measured by finding the market value of all final goods and services produced in the economy during a year.

Value Added Method

In this approach, the value added at different stages of production is calculated and then for estimating national income. According to this approach, national income is the sum total of value added by different producing units of a country in their production process. Thus,

Value Added=Value of Output-Cost of the Goods

Income Approach of NI Accounting

This approach is based on the estimation of income of various factors of production. Income method considers payments made to all productive resources of the country in the form of rent, wage, interest and profit. Thus,

GDI = Rent+Wage+Interest+Corporate Profits along with Indirect Taxes and Depreciation

GNI = GDI+NFIA

NNI = GNI-Depreciation

It doesn't includes the followings:

  1. The income earn from the sale of car, house, property, etc. produced in past.
  2. The income earned from the sale of stocks, bonds.
  3. Transfer payments from government.
The income method consists the following:

Wages and Salaries

It includes the wages and salaries received by the employees during the year plus certain supplements like provident fund and other labor income.

Rent

Rent includes the rent of land, factories, and houses from where the production process is carried out to supply goods and services to the consumer.

Interest

It includes the net interest income received by the people of the country from the investment as a factors of production.

Corporate Profits

It consists of corporate profits with inventory valuation and capital consumption, adjustments. It is the profits before tax, which consists of dividend, profit, tax and undistributed profits.

Depreciation

The depreciation made by each firm for the repair and maintenance of capital goods is also included in national income.

Net Indirect Taxes

The income generated from indirect taxes is also included in national income accounting approach.



Measurement of National Income

There are three ways of calculating income. They are:expenditure, income and product method. Any of these methods can used in calculating national income. But, the choice of a particular method depends on the availability of data. The three approach are:

Expenditure Approach

Expenditure approach measures national income as the aggregate of all final expenditure made by different agents of the economy during a year.

GDP=C+G+I+(X-M), and
GNP=C+I+G+(X-M)+NFIA

Where,
C=Consumption
I=Private domestic expenditure
G=Government expenditure
NFIA=Net Factor Income from Abroad
X-M=Exports minus Imports

The expenditure account consists of the following four components:

Personal Consumption Expenditure

It includes the consumption expenditure made by individual consumers for both durable and non-durable goods and services produced in the economy.

Gross Private Domestic Investment

It includes private investment in capital goods like machinery, plant, equipment, etc. But the expenditure made on the goods and services produced in the past and the financial made in credit instrument are not included.

Government Expenditure

It includes government expenditure on national defense and social sector. But, transfer payments made by the government on social security are not included in GNP.

Net Exports

It means the difference between export earnings and import expenses. The imported goods are not produced within the country and cannot be included in national income, but exported goods are included in GNP as they are produced in the country.

Concepts of National Income

There are various concepts of National Income. The main concepts of NI are: GDP, GNP, NNP, NI, PI, DI, and PCI. These different concepts explain about the phenomenon of economic activities of the various sectors of the various sectors of the economy.

Gross Domestic Product (GDP)

The most important concept of national income is Gross Domestic Product. Gross domestic product is the money value of all final goods and services produced within the domestic territory of a country during a year.

Algebraic expression under product method is,

GDP=(P*Q)

where,
GDP=Gross Domestic Product
P=Price of goods and service
Q=Quantity of goods and service
denotes the summation of all values.

According to expenditure approach, GDP is the sum of consumption, investment, government expenditure, net foreign exports of a country during a year.

Algebraic expression under expenditure approach is,

GDP=C+I+G+(X-M)

Where,
C=Consumption
I=Investment
G=Government expenditure
(X-M)=Export minus import

GDP includes the following types of final goods and services. They are:
  1. Consumer goods and services.
  2. Gross private domestic investment in capital goods.
  3. Government expenditure.
  4. Exports and imports.
Gross National Product (GNP)

Gross National Product is the total market value of all final goods and services produced annually in a country plus net factor income from abroad. Thus, GNP is the total measure of the flow of goods and services at market value resulting from current production during a year in a country including net factor income from abroad. The GNP can be expressed as the following equation:

GNP=GDP+NFIA (Net Factor Income from Abroad)
or, GNP=C+I+G+(X-M)+NFIA

Hence, GNP includes the following:

  1. Consumer goods and services.
  2. Gross private domestic investment in capital goods.
  3. Government expenditure.
  4. Net exports (exports-imports).
  5. Net factor income from abroad.
Net National Product (NNP)

Net National Product is the market value of all final goods and services after allowing for depreciation. It is also called National Income at market price. When charges for depreciation are deducted from the gross national product, we get it. Thus,

NNP=GNP-Depreciation
or, NNP=C+I+G+(X-M)+NFIA-Depreciation

National Income (NI)

National Income is also known as National Income at factor cost. National income at factor cost means the sum of all incomes earned by resources suppliers for their contribution of land, labor, capital and organizational ability which go into the years net production. Hence, the sum of the income received by factors of production in the form of rent, wages, interest and profit is called National Income. Symbolically,

NI=NNP+Subsidies-Interest Taxes
or,GNP-Depreciation+Subsidies-Indirect Taxes
or,NI=C+G+I+(X-M)+NFIA-Depreciation-Indirect Taxes+Subsidies

Personal Income (PI)

Personal Income i s the total money income received by individuals and households of a country from all possible sources before direct taxes. Therefore, personal income can be expressed as follows:

PI=NI-Corporate Income Taxes-Undistributed Corporate Profits-Social Security Contribution+Transfer Payments

Disposable Income (DI)

The income left after the payment of direct taxes from personal income is called Disposable Income. Disposable income means actual income which can be spent on consumption by individuals and families. Thus, it can be expressed as:

DI=PI-Direct Taxes

From consumption approach,

DI=Consumption Expenditure+Savings

Per Capita Income (PCI)

Per Capita Income of a country is derived by dividing the national income of the country by the total population of a country. Thus,

PCI=Total National Income/Total National Population

Nationl Income

The money value of the human resources of a country combined with capital acting on its natural resources produced annually various quantities of goods and services is called national income of a country. The total market value of all final goods and services produced in a year is National Income.

Alternatively, National Income can be defined as:

NI=Rent+Wage+Interest+Profit.

United Nations defines national income in the following three ways:

Net National Product (NNP)

Net National Product is the aggregate of net value added in all branches of economic activity during a specified period, including net income from abroad.

Sum of the Distributive Shares (SDS)

National Income is the aggregate of income accrued to the factors of production in the form of wages, profits, interest and wage, etc. in specific period.

Net National Expenditure (NNE)

National Income is the aggregate of expenditure on final consumption of goods and services, plus domestic and foreign investment.

According to Pigou, "National dividend is that part of the objective income of the community, including of courses income derived from abroad, which can be measured in money."

In the view of modern economists, National Income is the flow of output, income and expenditure. These three flows are always equal per units of time i.e.

National Output=National Income=National Expenditure

Production Possibility Curve (PPC)

Production Possibility Curve is a graphical representation of alternative production possibilities facing an economy. A PPC is a graphical illustration of all combination of goods and services that can be produced in a given economy at a given time, if all the available resources in the economy are fully and efficiently employed.

As the total productive resources of the economy are limited the economy has to choose between different goods. The productive resource can be employed for the production of various alternative goods. It has therefore, to be decided which goods are to be produce more and which ones less.

Assumptions:
  1. Economy is produces two goods.
  2. Full employment of resources is assumed.
  3. Time period is given and constant.
  4. Factors of productions are given and constant.
  5. Production techniques is given and constant.

PPC Schedule

Production possibilities schedule shows the different combination of different goods with the given technology and factors of production. Let us assume that the economy is producing only two commodities: consumer goods and capital goods.

From the above table, if all the available resources are allocated to produce consumer goods, an economy can produce is 15 units at combination A with the limited resources, increase the capital goods production consumer goods will be sacrificed. Due to the increased opportunity cost of consumer goods an economy increase capital goods production rather than consumer goods. Lastly, if all the available resources are allocated to produce capital goods, an economy can produce 5 units at combination F.

If we join all these point of production possibilities a graphical representation of production possibility scale comes out in a curve then it is known as production possibility frontier.

PPC is a curve showing all possible combination of two goods that a country can produce within a specified time period with all its resources fully or efficiently employed. It is always concave to the origin.

The PPC also called transformation curve because in moving from one point to another on it, one good is 'transformed' into another not physically but by transferring resources from one use to the another.

Points Inside and Outside PPC

With the given resources being fully employed and utilized can lie anywhere on the PPC but not inside or outside of it.

For example, the combined output of two goods purchased can neither at G not at H. This is so because at point G the economy could not be utilizing its resources fully and the output of two goods represented by H given the productive resources would lie beyond the capacity of the economy to produce.

Outside Shift in PPC

If the productive resources expand or increase, the PPC will shift outward to the right showing that more of both goods can be produce than before. Technological progress by improving productive efficiency allows the society to produce more of the both goods with a given and fix amount of resources.

On PPC n'f', the economy can produce more goods than on curve AF. The PPC shift outward with the growth of the economy because of:

  1. The increase in the amount of capital.
  2. The increase in the amount of natural and human resources.
  3. Progress in technology.

Nature of Economics

Nature of EconomicsOrigin of Economics

An ancient times oriental philosopher Kautilya regrades economics as a science of state government. The word 'Economics' is derived from the Greek word 'Oeikonomicus'. In Greek word 'Oeiko' means 'households' and 'Nomicus' means 'study'. The word oeikonomics refers to the science of household management. Occidental Greek philosopher Aristotle divided economy into two parts:

  • Economy Proper
  • Science of Supply
As time passed, economics was developed by several economists with different vision. Generally, the development of economics is divided into:

  • Period (1776-1890)
  • Neo-Classical Period (1890-1932)
  • Modern Period (1932-onwards)

Classical Period (1776-1890)

The famous economists of this period were Adam Smith, T.R. Malthus, J.B. Say, Devid Ricardo, etc. These economists are pillar of the classical economics. The study of economics in and around wealth and its significance.

Neo-Classical Period (1890-1932)

The famous economists of this period were Alfred Marshall, A.C. Pigou, Carl Marx, etc. The study of economics as the satisfaction or welfare derived from the consumption of material goods.

Modern Period (1932-onwards)

The famous economists of this period were Leonel Robbins, J.M. Keynes, etc. The study of economics for changing the focus of the study are 'wealth and aspect' and 'material welfare' to 'scarcity and choice' and 'human development'.

Allocation of Resources in Economics

Allocation of Resources in EconomicsScientific management of resources in the line of production, distribution, exchange and consumption is called simply allocation of resources. The allocation of resources discussed principle of right sharing of resources among competing sectors. Whatever, the type of economy be it capitalist, socialist of mixed decision has to be made regarding allocation of resources. In a capitalist economy decision about the allocation of resources are made through the free market price mechanism. A capitalist of free market economy uses impersonal forces of demand and supply to decide what quantities and thereby determining the allocation of resources. The producers in a free market economy motivated as they are by profit consideration take decisions regarding what goods are to be produce and in what quantity by taking into account the relative prices of various goods.

  • What to produce?
The first concered is rated with What to produce? How much to produce? Because resources are scarce production of all goods and services needed by a society are beyond its capacity. It is simply not possible for any economy no how develop it might be. So, it has to select a set among various alternatives production must meet the maximum social need. The first priority goes to the basic needs. However, production is guided by profit and profit knows social justice. An economy should follow social efficiency while recollectiong resources. The social norms and values should guide to maximize social satisfaction so allocation is best which satisfies the most. The problem of what to produce and how much to produce depends on the necessity of the citizens of the country.

  • How much to produce?
The second question is concerned with the method of production. In some cases, labor may play a major role. It is called labor intensive technology. In others, capital may play a major role. It is called capital intensive. Labor intensive methods creats more jobs favouring more employment. It helps in mitigating unemployment problem. Capital intensive production goes for large volume of production. It commends rapid growth rate. The right decision on the current state of the economy.

  • For whom to produce?
Production for masses or production for profit are two major choices that every economy has to decide. Basic needs of common people cannot be ignored. Of course, the priority goes to wage goods production. In the quality is determined by the level of living standard, which is the outcome of the development level of the economy. Therefore, as the development level of goods, higher production of superior goods proceeds towards fetching super profits. This issue is also related with maintaining social justice. Meeting the basic requirements of all segments of population is the main criteria of resources allocation.

  • Promotion of Efficiency in Economy
How to run an economy efficiently is the first concern of resource allocation. Economics efficiency is measured in additional welfare achieved without worsening any result. It means that new reallocation of resource must not only be able to maintain the existing level but also achieving new heights. Alternatively, reallocation may be profitable somewhere but incurring losses elsewhere. The main objective is to increase aggregate profitability of the economy.

  • Balance in Economy
Another purpose of resource allocation is the maintainance of balance among different sectors of an economy. The balance between rural and urban sectors, between home consumption and export promotion, between consumer goods and capital goods and regional balance are the healthy signs of an economy. Investment in these different sectors are very important. How much to invest in what sector? This is the major question, which is studied in this topic.


Choice in Economics

Choice
An economy has to decide how to use its scarce resources to attain the maximum possible satisfaction of the member of the society. This is what, we meet our choice. The optimization objective of the economic actors (producer, consumer and government) necessicities making knowledgeable choice in the use of available resources. Choice is in economic activities at both consumption and production level.

In economics, we suppose that a decision maker is rational/knowledgeable economic rationality of decision maker implies the following:

Scarcity in Economics

Scarcity
The common meaning of scarcity refers to the unavailability of goods and services in the market of a certain commodity. The conceptual meaning of scarcity in economics is however different. A commodity is scarce because it commands value. It commands price. We have to pay for any goods and services we want to consume. In addition, the resources that we have are also limited. A commodity is scarce, in economic sense not because it is rare or unavailable in market but because the means to have it are limited of resources to satisfy them are always limited. Human wants are unlimited, but between limited resources and unlimited wants and the problem there in. Economic problem arise because the goods we need are scarce. These scarce goods have many uses. Again, these uses are tempting and competing with each other. There is a problem of choice between alternative uses. Therefore, scarcity and choice guide the whole course of economic activities.

Scarcity is not just an individual problem. It is a problem of national economy as well. Its dimension charges when it is applied to national economy. In other words, scarcity of resources gives birth to national economic problems.

Scarcity brings broad human problems into our notice. There is poverty and human misery because of scarcity of resources. A poor man is poor because the resources accessible to him are scarce. A country is poor because there is scarcity of resources. Scarcity is deeper sense, tells the story of human misery and unhappiness around the earth. To understand and analyze the problem of poverty of a man and a country and to eradicate it, proper understanding of the problem of scarcity is of utmost importance.