Ever since the idea of sustainable trade between human beings came into existence, society has always faced the three fundamental problems of economics. Fast forward to the present day, where organizational management is key, the three problems are lust as crucial as It ever were. The fundamental problems faced by an economic organization are- 1 .
What to produce? 2. How to produce? And 3. For whom to produce. Addressing these questions successfully will lead to a successful and profitable organization.What to produce? Any organization intending to sustain itself has to answer this question before proceeding ahead with its business. To understand the depth of the question it is necessary to consider that society will only accept a product based on their wants and needs. If society does not require or are not Interested In a particular product, the business will inevitably fail.
Scarcity of resources can be a major factor in answering this question. However, the choice of the consumer remains the most important factor.Manufacturers will have to compete with each other to give nonusers what they want at competitive prices. Adjustments can be made by companies and organization to the cost of production and quality of the product to make it more appealing to consumers. For instance, a choice can be made between production of designer shoes that are expensive or a cheaper alternative without any brand name.
Here, the demand and response of the consumers towards the product will be key In the decision making process. In some cases, government policies can also drive the need of products and services.An example is where the law emending all riders to wear helmets increased the demand of helmets.
In this situation, profit seeking companies can manufacture and sell helmets to consumers. How to produce? Methods of production can vary from manual labor to automated machines depending on the product produced by a company or organization. A higher capital gives access to machines which can be useful in the mass production of products, at a cheaper cost. On the other hand, using manual labor reduces the need for a higher capital but the production will be slower in most circumstances.
Furthermore. Ration in quality and consistency of the product offered will also be influenced. The prime factor which dictates how an organization answers this economic problem are available capital, geographical location In terms of cost of labor and, the number of products produced. An example to further understand this problem Is where a drinks company has to decide whether to use capital to invest in mass production 1 OFF supply.
For whom to produce? The question of allocation arises because society faces the fundamental problem of scarcity-wants and needs are unlimited, but resources are limited.Because society lacks sufficient resources to produce every good that every person desires, society must decide who receives which goods and services that are produced. In order to sell their product, all organizations must have a clear idea about whom their products are targeted at. Choices made by individuals about their needs and wants are based on the income of the individual or family. For instance, a premium product like ‘phone AS was marketed by Apple to high-end consumers for whom the cost is less of a factor.
However, a cheaper alternative ‘phone C with reduced features will still be embraced by society for whom the price of an Phones is unaffordable. The theory behind this example is valid in all other standards of economies. Another line of thought on this problem helps to see that a company or organization also has to decide whether their products and services are aimed at the end user or a manufacturer who supplies the end user. An example is when a company has to decide whether they want to produce biscuits or build machines aimed at potential biscuit manufacturing companies. ConclusionSuccessfully answering these three questions can be the prime factor of how successful a company is. Scarcity leads to informed choices being made by Individuals, companies and the government. Scarcity can be caused due to increased demand from consumers, lack of resources or a combination of the two.
The theories on the three problems of economy aims to apply the knowledge gained regarding the factors influencing choice of consumers and market products and services which caters to the needs and wants for the consumers, thereby increasing the profitability and sustainability of a company or organization.