Economics (NCERT) Notes → Class XII

1.1 Production and Allocation of Resources

Resources and Needs
•People in a society need many goods and services in their everyday life including food, clothing, shelter, transport facilities like roads and railways, postal services and various other services like that of teachers and doctors.
•Each person can produce some goods or services by using the resources that it has, and use part of the produce to obtain many other goods and services which it needs.
•Different people have access to different resources and each individual can use her resources to fulfil her needs.
 
Examples of sharing of resources 
•A farmer can produce corn, use part of the produce for consumption purposes and procure clothing, housing and various services in exchange for the rest of the produce.
•A weaver can get the goods and services that she wants in exchange for the cloth she produces in her yarn.
•A teacher can earn some money by teaching students in the school and use the money for obtaining the goods and services that she wants.
•A labourer fulfills her needs by using whatever money she can earn by working for someone else.
 
Goods and services
•Goods mean physical, tangible objects used to satisfy people’s wants and needs.
•Goods can be brought and sold in the market.
•The term ‘services’ captures the intangible satisfaction of wants and needs.
•Food items, clothes, TV, cars etc. are examples of goods.
•Doctors and teachers perform for us are as examples of services.
 
Making best use of resources 
•Every individual in society is engaged in the production of some goods or services and she wants a combination of many goods and services not all of which are produced by her.
•As the resources of each person is limited, he is is forced to make a choice between the different goods and services that are available, as getting anything means giving up some amounts of other goods or services.
     •If the family wants to have a bigger house, it may have to give up the idea of having a few more acres of arable land.
     •If it wants more and better education for the children, it may have to give up some of the luxuries of life.
•Everyone faces scarcity of resources, and therefore, has to use the limited resources in the best possible way to fulfil her needs.
 
Diversion of Resources
•There has to be some compatibility between what people in society collectively want to have and what they produce.
•For example, the total amount of corn produced by family farm along with other farming units in a society must match the total amount of corn that people in the society collectively want to consume.
•If people in the society do not want as much corn as the farming units are capable of producing collectively, a part of the resources of these units could have been used in the production of some other good or services which is in high demand.
•On the other hand, if people in the society want more corn compared to what the farming units are producing collectively, the resources used in the production of some other goods and services may be reallocated to the production of corn.  
 
Allocation of resources
•The resources of the society are scarce in comparison to what the people in the society might collectively want to have.
•The scarce resources of the society have to be allocated properly in the production of different goods and services in keeping with the likes and dislikes of the people of the society.
•Any allocation of resources of the society would result in the production of a particular combination of different goods and services.
 
The basic economic problem
•The goods and services thus produced will have to be distributed among the individuals of the society.
•The allocation of the limited resources and the distribution of the final mix of goods and services are two of the basic economic problems faced by the society.



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