Allocation of Resources and other major economic problems

Why allocation of resources is important?
The problem or need for allocation arises due to two facts:
a) that 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 varying uses and combinations.

It is a known fact that no economy can be fully equipped on its own in meeting out all its demands or in satisfying all the needs of its consumers. Wants are innumerable and varying. Different wants need different products or services to satisfy them. And they require necessary resources or inputs for producing those goods and services. But no country can produce on its own all the services and goods required by it nor do they possess all the resources required for producing them. Each one has to depend on its neighbouring state for something or other of its needs and resources. So, a best economy is one which tries to meet all its needs through a better management and efficient allocation of resources to their best and utmost use, thereby depending very rarely on other countries.

As we know, allocation of resources to their best optimum uses is a very great challenging problem. For this purpose you should collect vast details of the nature of resources and their varying qualities and probable ways of using them for producing the required goods and services to obtain maximum beneficial results.You should think in terms of whatever combinations of resources can be tried upon to produce the required maximum beneficial results.

The major economic problems faced and dealt with by any Economy are as follows:-

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 man power are some of the major requirements for producing any goods or services. Does the country possess all these resources? To how much extent it has these stocks?

2) Locating the needs and wants of consumers
For producing goods and services, you should first know about the needs and wants of people and the quantum of those demands. Only when you know about locating 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 about the demands for goods and services, you will get a picture of what is to be produced. Then, you should think of the ways of producing the goods and services that are needed.
You should ponder over different methods of producing goods and services by using different combinations of resources. A same product is produced using different combinations of materials, labour and power. So, you should decide about the combinations possible.

4) Locating priorities for production
You should think about preferences in the order of producing goods and services. Which goods and services need to be produced with more emergency and importance over others? And which class of consumers or regions of demand need more attention than others? You must decide whether you feel food grains and medicines as more important than beverages, garments and electronic goods or vice versa.

5) How much to produce of each item?
Then, you need to decide upon how much of each particular item to be produced considering the repetitive demands for many goods and services on regular basis 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 so much demanded and so produced in lesser quantities. Even among cars certain models and brands are too costly and not demanded by many. So, you have to know how much to produce of each item. Research on which item requires to be produced more and which in lesser 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 a land either by using manual labour or with the help of mechanised process. Water can be supplied by digging bore wells or by supplies through river canals or even through water tankers. So, you decide the means of production.

7) Dealing with scarcity of resources
How to deal with the problem of scarcity? There two ways of dealing with scarcity as mentioned below.

• Scarcity leads to choice among available alternatives and also in full utilisation of available resources. So, you can minimise the bad effects of scarcity of resources by choosing the right product or service at the right time that fits into your most urgent needs and demands. By doing so you are further able to put your resources in use to their full satisfaction/ utilisation level. As a consumer, you will buy what is more important that can give maximum satisfaction to you. As a producer, you will produce those goods and services that are most demanded by consumers and which result in most perfect combination of resources thereby increasing your profits also.

• The other solution to scarcity is growth of resources. Inventing new fields of resources by continuous research and experimentation. Any kind of resource like land, labour, mines and capital are always prone to expansion through continuous explorations.

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 capitalist, planned or mixed economy. Allocation of resources to their best combinations and utmost uses along with efficient management of resources by using them to their full extent and contributing to the growth of resources are some of the best ways of tackling this problem.

What is Economy? Understanding its relevance in Economics & Types of Economy

What is Economy?
Economy is a system or organisation, wherein, economic activities take place. It is a man-made system for facilitating the satisfaction of the various wants and needs of human beings that can be achieved through generation of income and production and consumption of goods and services.

How does Economy come into existence?
Economy is created by man to facilitate his existence in the society. Man needs to satisfy his wants in some way or another to maintain his existence and for this he needs a system of economy to get a living.

In primitive world, there was no system of economy and man used to satisfy his wants randomly on his own. He plucked fruits or dug edible roots from earth and  hunted birds & animals to satisfy his hunger. He used to live at water resources to satisfy his thirst. He covered himself with leaves to protect from heat, cold and rain.. He never thought of the need for economic institution nor did he possess such kind of knowledge.

But, gradually, he learnt about exchanging his goods with items available from others (known as barter system) and then invented coins and currency, production, distribution and consumption  to satisfy his ever growing needs. Slowly, he started learning about saving or economising the goods and resources as population started increasing and natural resources appeared to be not enough in satisfying his needs. He invented other means like improved farming, manufacturing, marketing, professional services etc. to earn income and exchange things with others and thus modern economy and economic systems came into existence.

Some notable features of an Economy

• Economy or economic system is manmade to get his living.
• Economy is always susceptible to changes.
• Economy differs according to geographical, cultural and available natural resources.
• Demand, Production, Consumption, Saving and Investment are the important activities of an economy. 
• The producer and consumer can be the same person in an economy as whatever produces, he consumes also.

Purpose of Economy
The purpose of any economy is to satisfy human wants though interaction among people. It is a process of bringing the services and goods within the reach of consumers through different activities of production, supply and consumption with the help of available resources and factors of production. The involvement in these various activities generates income to those factors. But, any economy is bestowed with limited resources only for performing these activities. The available resources are either scarce or not known to us. May be they are not fully discovered and utilised. So, those economies which utilise the resources to their utmost use become more developed than others who are unable to use them more perfectly. Thus, we see variations in economies.

Three Types of Economy

Broadly, there are three types of economy known as Capitalism, Socialism and Mixed Economy. Let us look at the salient features of these economies.

Capitalist Economy

• Under capitalist economy, the producers are free to take their decisions without any interference from government mechanisms.
• They own the properties and resources acquired by them. There are no restrictions as to ownerships and boundaries.
• Profit earning is the main force driving the capitalist economy. Producers are interested in increasing their profits and consumers are interested in availing utmost satisfaction.
• But, capitalist economy has the drawback of monopolising the markets.

Socialist Economy

• Under socialist economic conditions, the common cause of society is considered as more important factor.
• The government interferes in all matters and sets norms and guidelines for producers and businessmen.
• All resources are owned by government in the interests of public and they are allotted to producers and manufacturers according to some procedures and laws established by the government in the interest of public.
• Social welfare is the main goal in this kind of economy rather than profit motive.

Mixed Economy

• This is a mixture of capitalism and socialist economy. The good features of both economies are combined together to form mixed economy.
• In this mixed economy, both private and public participations are there.
• More essential resources and factors of production along with activities of business are controlled by government in this type of economy by creating public enterprises and corporations.
• Price mechanisms are controlled by government, fixing prices of essential commodities and controlling hoardings and black marketeering, etc.
• Annual plans and long term plans are made by government to control all financial and economic activities.
• This mixed economy is a good type of economy for the development of society, if properly employed by both government and businessmen honestly.

Economy and Economic Development
Economy of any place gets identified by its being developed or undeveloped or underdeveloped natures. So, economic development is the standard of measurement for identifying economies at any given time.

What is Economic Development?
Economic development refers to the all over growth of economy in general. It means that the people living in that economy are enjoying a good level of standard of living by being able to earn ample income which satisfies almost most of their wants. Some of the salient features of economic development include the following.

• It is not simply limited to a mere growth of income and standard of living. 
• Economic development implies that people are living a better life in every aspect of life. 
• There is reduction of poverty and unemployment and diseases. 
• The gap between rich and poor gets narrowed with more opportunities created for earning of income and acquisition of wealth made accessible to poor also.
• There will be control over population growth and and hygienic conditions of environment.
• The overall expenditures of public and governments will be within the limits of available income and resources of income.
• A state of improvement in technology and trade relations has been achieved.

Three states of Economy based on their development
Based on economic development, economies can be classified into developed, under developed or developing economies. Let us have a look at the features of these economies.

Developed Economy
A country that has attained most economic growth and is enjoying comparatively good standard of living and better quality of life with higher per capita income, is known as a country with developed economy. Such countries have higher standard of education, better amenities, higher mortality rate, etc. Factors like GDP or Gross Domestic Product, Gross National Product, use of advanced infrastructure and level of industrialization are indicators for developed economy. Countries like USA, UK, Germany, Japan, Australia are some of the examples for developed economies.

Under-developed Economy
Countries with poor growth and poor standards of living are classified as under-developed economies. They are characterized by very low GDP, low per-capita income, poor standards of living, poor amenities and low mortality rate. But most of these countries have now moved to the class of developing countries.

Developing Economy
This group constitutes of all those countries that are still developing but have moved out of the Under-developed category of economy. These countries are characterized by continuously dwindling statistics of growth and standards of living, major disparities and wide gaps economically between different classes of people and regions. The resources do not get fully utilised or tapped in these economies. Countries like China, India, Pakistan, Sri Lanka, Brazil and Mexico are among a long list of developing countries.

Characteristics of Human Wants

As discussed earlier, human wants are those desires which are backed by some purchasing power of man. Now, these human wants have many characteristics of their own and different levels of satisfaction capacities. Let us look at some of these characteristics of human wants.

Wants are Unlimited in Number
Just like desires, wants are also unlimited. If you satisfy one want, another want arises and it is an endless process. But your resources are limited and so, you can not satisfy all your wants. Ultimately you will satisfy some wants of most urgency and postpone the others for a later period.

Some wants are Recurring in Nature
Many wants need to be satisfied again and again at certain intervals. For example hunger needs to be satisfied again and again for 3 or 4 times in a day. Maintaining a good look of your face and head require periodical hair-cutting, shaving, applying lotions, creams and face powders, etc. All these are examples of recurring wants.

Wants are Satiable
We find that we are able to satisfy all our wants that we try to satisfy at any point of time. At any given point, we satisfy each single want to its full extent. We are able to satisfy hunger, for example, by consuming a plate of meals or two or utmost by three plates, say. Like wise, we satisfy thirst by drinking one glass or two or three glasses of water for that particular occasion. So, wants get satisfied to their full extent at any given point.

Wants are sometimes free wants (Economic and Non-economic Wants)
Some of the wants get satisfied without having to pay anything in return. For example, air, water, sunlight, nature's beauty all these are free wants. We need not pay anything to satisfy these wants. But, with time, they may become non-free items: we pay for bottled water, oxygen cylinder and the like. But, basically, some of these wants are free and known as non-economic wants; while other paid wants are classified as economic wants.

Present Wants have an edge over Future Wants
Most of us give more weight at satisfying our more recent and present wants and postpone the future wants due to the reason of limited resources available with us in satisfying our wants. So we give more importance to our present wants and satisfy them first.

Wants change according to place and time and person to person
Wants depend upon your place, tastes and likings and on time also. Different people have different wants in different environments. They depend upon culture, civilisation and time and age.

Wants change with Economic and Technological development
Advancement in economy and technology affects the wants greatly. Previously, we used to want for a Radio or a Telephone set. But now most of us, if not all of us, want to possess a TV set or mobile phone as our basic requirement. This is due to progress in economy and technology.

Thus, we are able to see that Wants are capable of different characteristics and have variant satisfying levels according to circumstances and environmental factors.

Human Wants, How they differ from Desires and their Satisfaction

Here, I am giving some basic knowledge and facts about desires and wants and their satisfaction. To know about Human Wants in Economics and their characteristics, we should first know about the difference between wants and desires and be able to distinguish the wants from desires.

What is Desire
All human beings have Desires. They are just like some natural instincts or longings. We desire to be rich, to be healthy, to be happy and reach to a high status and position in society. We like to live in posh bungalow, own a car, dine in 5 star hotels, wear stylish apparels, own huge bank balance, travel in air, so on; it is an endless list.These are all desires and can be had by any person. Desires and dreams are fantastic things. They can be had at any of the oddest occasions also because they need no price to be paid for having them.

Human Wants
Now, coming to wants. Human Wants in Economics are desires that are supposed to be backed by purchasing capacity. You can not fulfil all of your desires at any case. You should have money or some purchasing power to get your desires accomplished. So, a desire becomes a want when you think of achieving it and try to satisfy the desire with your purchasing capacity. You will try to earn some income or possess wealth in order to satisfy them.

Difference between wants and desires

• Desires are natural instincts which start even from birth. Wants are developed from these natural desires, while man grows on along with his earning capacity and purchasing power.
• Desires do not require purchasing power for their existence. But wants require to be backed by some purchasing power.
• Desires are infinite in number. They keep on growing always. Wants are also innumerable, but they often develop with your growing capacity and environmental conditions.
• Most of the Desires are left unsatisfied. But, in case of Wants, most of them get satisfied during your lifetime. 

How do Wants get satisfied?

Wants are satisfied by way of acquiring and strengthening your purchasing power. You earn income and accumulate purchasing power to satisfy all your wants.

• Wants get satisfied in two different ways. They are satisfied through consumption of goods or utilising the services of different service providers.
• Purchasing a house, car, clothes, food, etc., are examples of some wants satisfied with goods. 
• But these goods alone can not satisfy your wants. You will further require the services of a doctor, a hair cutter, a washer-man, a housemaid and many other professional men for satisfying some of your wants.
• Again,wants are satisfied with the backup of resources. So, you can satisfy wants as long as the resources are there, not after that.
• Some wants get satisfied with a single consumption whereas many other wants need recurring and regular consumption, like eating food, wearing clothes, shaving, hair-cutting and others.

What is Break-Even-Point?

Break-even point refers to an optimal level of business activities of any firm where cost of production and price match each other. It is a stage where there is no profit or loss in the business. Total revenue matches with total costs.From this point, you can reach towards profit by improving your operations efficiently or, on the other hand, may incur losses due to mismanagement and defective planning.

Definition of Break Even Point
Break-Even-Point can be defined as a point in business scale where the value of total costs equal to total sales or revenue at any point of time. It is a point where expenses equal to income and there is neither profit nor loss in the operations of business. The operations of sales and production of the business break even at this point in a curve or lines joining the costs and revenues.

Importance of Break-even point

• Break-even point is very helpful in calculating the minimum level of output that is to be crossed to make profits in business. Or, in other words, you can know about the minimum sales that are required to be made to meet out all expenses and make an extra unit of profit.
• The business man is able to know the minimum number of units required to be produced and sold to level both his fixed costs and variable costs so that with an extra unit sold he can start making profit.
• So, break-even point calculation can be used by management in setting the prices of products and in determining the minimum sales target to be achieved by them.
• Further, it is very useful in controlling your fixed costs as you are able to know the impact of fixed costs on your performance level.

Calculation of Break-even Point

Break-even point is calculate with the assumption that Total Cost= Total Revenue or income.
Now, total cost includes both Total Fixed Cost and Total Variable Cost.

Total Fixed Cost is your fixed expense which more or less remains the same. But Variable Cost is related to number of units produced. So Total Variable Cost depends upon your production and sales quantity. So, let us assume that Variable Cost multiplied by the number of units gives you the Total Variable Cost. If Variable Cost is V and number of units is X, then Total Variable Cost = V*X (Variable cost multiplied by X units).

Let Total Fixed Cost be TFC. and Total Revenue be TR. But TR is Price of product multiplied by number of units produced or sold. So, let TR be equal to P*X (Price multiplied by X units)

Now, Break even point or BEP will be equal to TFC + VX = PX or to change the position,
TFC= PX- VX  = X (P-V)

To deduce the number of units required to be produced or sold, the equation will be
X = TFC divided by P-V

If we give values to above concepts:- Suppose TFC = 1,000,000 and P is 100 and V is 60.

From above formula of X = TFC/ (P-V), so, 1000000 divided by (100- 60) ie. 1000000 divided by 40.

So, the number of units required to produce and sell is 25,000 units. This is the Break-even production or Break-even sales to be achieved in order to realize the full expenses incurred by the business.

Benefits of using Break-Even-Point concept

• By using this method, you are able to know the production and sales targets to be achieved by your business during any period of business.
• You can control the costs and production levels according to your available options to achieve maximum benefits and to reap profits.
• In the above example, if you feel it is difficult to achieve the production of 25,000 units, then you may consider other options like reducing your Total Fixed Cost or reduce the Variable Cost or you may even consider of increasing the selling price of your product to meet the expenses.
• You can plan your future plans and build budgets and projects with the help of this break-even method of concept.

Limitations to application of Break-Even-Point
There are some limitations in applying this method as it is based on some pre-assumptions.

• Break-even concept assumes that Fixed Costs are constant. But in actual cases, fixed costs also change when there is large scale increase in production or sales as you require to employ more staff and hire more space for increased activities and many other expenses also increase.
• This concept again assumes that variable cost is constant during the entire period of application of this concept. If there is any slight variation in the variable cost during the period of application, then also, the entire calculation will become useless and all predictions will go wrong.
• This method does not take into account the stock of inventory as it assumes that production quantity is equal to sales quantity.
• It further assumes that in multiple product companies, the mix ratios of production are equal to the mix ratios of sales. It considers that the relative ratios between different products are maintained same as that of sales.

Marketing strategy & techniques -Three stages of Marketing Strategy

Need for strategies
As I discussed earlier in another chapter, marketing applies both scientific and artistic approaches towards creating customer base and selling your products. Selling your product requires a great deal of wooing your customers. Gone are the days, when the businessmen used to simply keep their shops open and wait for the customers to come and exchange your goods for their money. There is much competition now and nobody will approach on his own to buy your product unless you attract him with your Marketing Strategy.

So, selling your product requires use of alluring and effective strategies so as to attract buyers and establish your market. Marketing Strategy is aimed at increasing your sales and promotion of your business. It is a package of the plans and techniques employed for establishing and promoting your business. It involves use of many different techniques at different levels of business. Before starting business,you need to find out the tastes of buyers and locate your prospective buyers and the areas for your market. Then, you need to advertise your products and services, give discounts and incentives to create market for your goods and establish your strong hold in your area.

Apply strategy according to your business
Different types of products or different areas of market require different marketing strategies typical of their own markets. So strategies can differ from product to product or from area to area. Agricultural product requires its own typical strategy and electronic product requires its own strategy for marketing. Similarly, more advanced cultures need their own typical strategies whereas rural culture has its own strategy for marketing. So, each strategy applies its own marketing technique to promote its business. But overall, the principles are the same. We need to find out our market and prospective buyers. Then we establish our business choosing the products and areas of operation according to the requirements. Then it involves in retaining the customers with incentives so that they may not shift to other products and sellers.

Three stages of applying Marketing Techniques 
Any type of business involves three stages of your Marketing Strategy for setting up the business and its market. These stages are as follows:

• Locating business opportunities and areas before starting business through study and research.
• Promotion of business after setting up your product and market.
• Retaining the market base and customer confidence through good quality, after sale service and support.

All these three stages of business require employment of appropriate and efficient marketing techniques. Let us study the techniques employed at each of these stages of business.

Techniques employed before establishing business

1. Conduct research to study the culture and tastes of the area where you want to establish your business. This will let you know what options are available for you to trade in and you can choose one that is most suitable to you. For example, if the people are more cultured and like fashionable dresses, advanced electronic items or continental foods, you can choose one of these items as your business.
2. Know about the resources available for procuring or producing your goods and about available transportation facilities for conducting your business.
3. You need to keep knowledge of the local laws and restrictions that are in effect in your business area to protect yourself from any later complications. 

Marketing Techniques to be employed after business commencement

1. Ensure good quality of your products. Your product should be preferred by customers as a better one in comparison with other sellers. Then only will they come to you.
2. Pricing to be done reasonably. Fix your product price at a reasonable level which can be a bit lesser than other traders so that customers get attracted by the low price. The difference need not be much. Even a fraction of 1% can attract more customers to your product.  
3. Ensure continuously ready availability of your products. If customers do not get whatever they want readily available at your store, they will look for other shops and you can lose your customer base.
4. Promote your business through various methods like distributing pamphlets, erecting posters and banners at different places of your area so that people come to know of your business. You can advertise through TV channels and by placing advertisements in news papers also. Showing a celebrity using your product can be a more effective tool of publicity for your product. Sometimes using sex appeal also works out to great extent. These are all publicity stunts for growing your business.
5. Make your on-line presence felt by maintaining a website and posting the salient features of your business and all your products there on the website. This will facilitate the prospective buyers to find out the sellers of their products easily.

Marketing Techniques for retaining, evaluating and improving your customer base

1. Best technique to retain customers or attract more customers is to offer some value added services and discounts to regular customers. Offer some discount, or a coupon or a reward points card to allure and satisfy the regular customers. They get pleased to know that they get points or discount coupons every time they shop with you and they turn around more frequently to enjoy this satisfaction.
2. Offer free appraisal and usage/maintenance tips on your products. Let the customers know some important features and facts of your product which they do not know. Also instruct them how to use and maintain the product for yielding longer life benefits. This will make them more confident about your products.
3. Another most important technique to be employed in business is packaging and brand image of your product. A nice package with good design and appealing colours will enhance your product. They get associated with your brand image as an identity for good quality. 
4. Ask for feed back from customers to know their opinions about your products and services. Thereby you can know about the likes and dislikes of customers, why they are choosing your product instead of others and how you can improve your quality to satisfy them. This will always help you in improving your business and growing your customer base.
5. One more technique is to interact with customers in a cool manner when they come to you or are on-line. Applying gentle manners and sweet voice enhance your image in their minds and creates a great image of your business and goodwill among customers.
6. Sometimes adding new items to your business can keep customer base intact and also create new customers.
7. Finally, be prepared to adopt yourself to the changes in tastes, culture and technology.

What is Marketing? Differences between Selling and Marketing

Marketing is the process of creating market for your products through selling and business promotional activities. It is a kind of creating communication between prospective buyers and sellers/ producers of goods and services.

But selling is very limited in scope. It aims at simply selling the product without caring for the quality assessment and customer care.

Definition of Marketing
Marketing can be defined as the process of communicating the value of a product or service through promotional activities and brand building, thereby creating a customer base for the business.

It is a set of activities employed by a company associated with the buying and selling of goods and services including consumer research, advertising and selling till the point of delivery of goods to the ultimate consumers.

Marketing process employs both scientific and artistic approaches for selling of these products. Scientific approach because it indulges in the study of market conditions and research of customer tastes and product quality. Artistic because it needs to be appealing to the senses of customers. It employs the 4 P's of marketing - Product, Price, Place and Promotion. These 4 P's determine their marketing activities. The ultimate goal of marketing is to reach to the customers with an aim to satisfy their needs and maintain a long term relationship with them.

Why Selling is Different from Marketing?
Now, coming to the discussion of differences between selling and marketing concept, let us look at the salient features of selling activity and marketing activity by comparing them through this below table.

Differences between Selling and Marketing

SELLING	MARKETING
Narrow minded	Broad-minded
Limited in scope	Unlimited scope
Engaged in simple selling activities	Involves customer creation, selling and business promotional activities also
Sole purpose is profit making	Thinks about customer care, social cause and product quality also
Operates in a limited area	Engages in widespread areas
Limited staff engagement with a sole proprietor as owner	Employs huge staff of marketing and sales managers and selling agents and sales staff
Proprietor himself oversees sales	Marketing manager is head for marketing activities
Selling is done simply by sitting in the shop	Marketing involves field study and field work
Customers come on their own needs	Customer base is created by wooing them

The above are some of the major differences between Selling and Marketing activities.

So you are able to distinguish now the differences between selling and marketing concept and thereby understand that selling is a component of the wider field of marketing.