What is allocation, and why is the allocation of resources important?
Allocation of resources refers to the process of prudently distributing available resources among various options to achieve optimal utility.
The problem or need for allocation arises due to two facts:
a) resources are not sufficient in any economy and
b) each resource or factor of production has varying uses.
So it becomes necessary to efficiently utilise the available resources to their best possible results by choosing among their multiple uses and combinations.
Need for Allocation of Resources
- It is a well-known fact that no economy can be fully equipped on its own to meet all its demands or satisfy all the needs of its consumers.
- Wants are innumerable and vary.
- Different wants require different products or services to satisfy them, and they require the necessary resources or inputs to produce those goods and services.
- But no country can independently produce all the goods and services required by it, nor does it possess all the resources required to produce them.
- Each one has to depend on its neighboring country for some of its needs and resources.
- So, a country should produce those goods or services that are most efficiently produced and rely on its neighbouring countries for other needs.
- Allocate available resources for producing those goods and services through efficient management.
So, the best economy is one that tries to meet all its needs through better management and efficient allocation of resources to their best and utmost use, thereby depending very rarely on other countries.
As we know, allocating resources to their best possible uses is a very challenging problem.
As we know, allocating resources to their best possible uses is a very challenging problem.
For this purpose, you should collect extensive details about the nature of resources, their varying qualities, and the probable ways of using them to produce the required goods and services and obtain maximum beneficial results. You should think in terms of whatever combinations of resources can be tried to produce the required maximum beneficial results.
1) Availability of resources
What are the resources available in the economy? Does the economy have sufficient stocks of all resources required in producing its goods and services? Water, power, minerals, fuel stocks, land, and manpower are some of the major requirements for producing any goods or services. Does the country possess all these resources? To what extent does it have these stocks?
2) Locating the needs and wants of consumers
While producing goods and services, you should first know about the needs and wants of people and the quantum of those demands. Only when you understand the needs and wants in marketing can you start thinking of allocating the resources for their production. Then you will come to know of the gaps between needs and available resources.
3) Knowledge about ways and means of producing goods and services
Once you know the demand for goods and services, you will picture what to produce.
Major Economic Problems
1) Availability of resources
What are the resources available in the economy? Does the economy have sufficient stocks of all resources required in producing its goods and services? Water, power, minerals, fuel stocks, land, and manpower are some of the major requirements for producing any goods or services. Does the country possess all these resources? To what extent does it have these stocks?
2) Locating the needs and wants of consumers
While producing goods and services, you should first know about the needs and wants of people and the quantum of those demands. Only when you understand the needs and wants in marketing can you start thinking of allocating the resources for their production. Then you will come to know of the gaps between needs and available resources.
3) Knowledge about ways and means of producing goods and services
Once you know the demand for goods and services, you will picture what to produce.
Then, you should think about the ways and means of producing those goods and services.
4) Locating priorities for production
You should consider preferences in the order of producing goods and services. Which goods and services need to be produced with greater urgency and importance compared with others? Which classes of consumers or regions of demand need more attention than others? You must decide whether you consider food grains and medicines more important than beverages, garments, and electronic goods, or vice versa.
5) How much to produce of each item?
Then, you need to decide how much of each item to produce, considering the continuous demand for many goods and services due to the recurring nature of wants.
You should consider different methods of producing goods and services by using different combinations of resources. The same product can be produced using different combinations of materials, labor, and power. So, you should decide which combinations work out.
4) Locating priorities for production
You should consider preferences in the order of producing goods and services. Which goods and services need to be produced with greater urgency and importance compared with others? Which classes of consumers or regions of demand need more attention than others? You must decide whether you consider food grains and medicines more important than beverages, garments, and electronic goods, or vice versa.
5) How much to produce of each item?
Then, you need to decide how much of each item to produce, considering the continuous demand for many goods and services due to the recurring nature of wants.
For example, food and water are recurring and continuous requirements, so they need to be produced in vast quantities. Cars and bikes are not in high demand, so they are produced in smaller quantities. Even among cars, certain models and brands are too costly and not sold regularly.
So, you have to know how much to produce of each item. Research which items need to be produced in greater quantities and which in smaller quantities.
6) Factors of Production and choice making
We need to make decisions regarding which factor of production is to be used and in what mix ratio. For example, farming can be done on land either by using manual labour or with the help of mechanised processes. Water can be supplied by digging bore wells, through river canals, or by means of water tankers.
6) Factors of Production and choice making
We need to make decisions regarding which factor of production is to be used and in what mix ratio. For example, farming can be done on land either by using manual labour or with the help of mechanised processes. Water can be supplied by digging bore wells, through river canals, or by means of water tankers.
This way, you decide the means of production.
7) Dealing with scarcity of resources
How to deal with the problem of scarcity? There are two ways of dealing with scarcity, as mentioned below.
7) Dealing with scarcity of resources
How to deal with the problem of scarcity? There are two ways of dealing with scarcity, as mentioned below.
- Scarcity leads to choice among available alternatives and also to full utilisation of available resources. So, you should minimise the bad effects of scarce resources by choosing the right product or service at the right time that fits into your model. By doing so, you put your resources to their full utilisation level.
As a producer, you will produce those goods and services that are most demanded by consumers, and which are the result of a most perfect combination of resources, thereby increasing your profits.
- The other solution to scarcity is growth of resources. Inventing new means of resources through continuous research and experimentation. Any kind of resource, land, labour, mines, and capital, is always prone to expansion through continuous exploration.
So, these are some of the major economic problems faced by any kind of economy which need to be given utmost attention, whether it is a capitalist, planned, or mixed economy.
Allocating resources to their best combinations and uses, managing them efficiently, using them to their full extent, and contributing to the growth of resources are some of the best ways of tackling this problem.
