What are the different alternatives in solving the economic problem?
Here are two important methods in solving the economic problem.Free price mechanism - It is a system used in guiding and coordinating the decisions of every individual unit within an economy through the price determined with the assistance or support of the free play of market forces of demand and supply. The Price mechanism should facilitate the determination of resource allocation, determination of factor incomes, and level of savings, consumption, and production. Controlled price system or State intervention – It is a system of state intervention of administering or fixing the prices of the goods and services. In this kind of system, the government plays an important role in determining the price of the goods and services. The government may introduce ‘ceiling price’ or ‘floor price’ policy to regulate prices. There will be a clear government regulation of all goods prices and no entrepreneurs can increase prices without government recommendation.
Economic problem somehow will arise due to uneven distribution of natural resources, lack of human specialization and technological advancement etc., this problem hinders the production of goods and services in an economy. Every economy has to face the problems of what to produce, how to produce and for whom to produce in order to allocate sufficient goods in the market with a reasonable price.
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