# ENGINEERING ECONOMICS AND MANAGEMENT # ------------------------------------------------------------------------------------- BASIC ECONOMIC PROBLEMS AND POVERTY ------------------------------------------------------------------------------------- CONTENT ------------------------------------------------------------------------------------- > BASIC ECONOMIC PROBLEMS - WHAT TO PRODUCE? - HOW TO PRODUCE? - FOR WHOM TO PRODUCE? - EFFICIENT USE OF RESOURCES - GROWTH OF ECONOMY: > POVERTY * MEANING * TYPE OF POVERTY * CAUSES - HIGH POPULATION GROWTH - UNEMPLOYMENT - INFLATION - SOCIAL CAUSES - BACKWARDNESS OF AGRICULTURE - POLITICAL CAUSES * MEASURES TO REDUCE - EMPLOYMENT OPPORTUNITIES - ESTABLISHMENT OF SMALL SCALE INDUSTRIES - EDUCATION - REDUCE INFLATION - CHECK POPULATION GROWTH - UPLIFT OF AGRICULTURE ------------------------------------------------------------------------------------- CREATIVE SLIDES

2. ENGINEERING ECONOMICS
& MANAGEMENT

3. BASIC ECONOMIC PROBLEMS
AND POVERTY

4. C O N T E N T
▪ BASIC ECONOMIC PROBLEMS
▪ POVERTY
• Meaning
• Type of Poverty
• Causes
• Measures to reduce

5. BASIC ECONOMIC PROBLEMS:
BASIC
ECONOMICPROBLEMS
WHAT TO
PRODUCE?
HOW TO PRODUCE?
FOR WHOM TO
PRODUCE?
GROWTH OF
ECONOMY
ECFFICIENT USE OF
RESOURCES
BA S I C
EC O N O M I C
P RO B L E M S

6. WHAT TO PRODUCE?
BASIC
ECONOMICPROBLEMS
▪ The first central problem of an economy is to decide what
goods and services are to be produced.
▪ Why this question arises?
Because, resources like land, labor, capital are
limited or scarce.
▪ So, we have to choose the best, for allocative efficiency we
should select the mix of services and products which
produces the most value or utility.

7. WHAT TO PRODUCE?
BASIC
ECONOMICPROBLEMS
▪ Suppose a company produces product X and product Y.
▪ Company have to choose among the combinations В, or D
which give the highest level of satisfaction.
▪ If the society decides to have more
quantity of product Y, it will choose
combination B, and if it wants
more quantity of product X, it will
choose combination D.
P
P
PRODUCT- X
PRODUCT-Y
C
F
0
G H
B
D

8. HOW TO PRODUCE?
BASIC
ECONOMICPROBLEMS
▪ The next basic problem of an economy is to decide about the
techniques or methods to be used in order to produce the
required goods.
▪ The technique to be used also depends upon the type and
quantity of goods to be produced.
C O M P L I C AT E D
P R O D U C T I N
L A R G E A M O U N T
EXPENSIVE MACHINES
& COMPLICATED
TECHNIQUES
S I M P L E P R O D U C T I N
S M A L L O U T P U T S
LESS EXPENSIVE
MACHINES & SIMPLE
TECHNIQUES

9. HOW TO PRODUCE?
BASIC
ECONOMICPROBLEMS
▪ Suppose a company is producing certain quantities of product X
and product Y at point A on PP curve.
▪ By adopting new techniques of production, the productive
efficiency of the economy increases.
▪ As a result, the PP curve shifts outwards to P1P1.
P1
P
P P1
A
B
PRODUCT- X
PRODUCT-Y
▪ It leads to the production of more
quantities of product X and
product Y from point A on
PP curve to point B of P1P1 curve.

10. FOR WHOM TO PRODUCE?
BASIC
ECONOMICPROBLEMS
▪ For whom to produce implies how the national product is to
be distributed among the members of the society.
▪ In a free market economy who would get how much of
national output depends on his money income.
Less amount of
goods he would be
able to buy
More amount of
goods he would be
able to buy
GREATER
THE
MONEY
INCOME
LESSER
THE
MONEY
INCOME

11. FOR WHOM TO PRODUCE?
P
P
NECESSARIES
LUXURIES
C
F
0
G H
B
D
▪ A rich person may have a large share of the luxuries goods, and a poor person may have more
quantities of the basic consumer goods he needs.
▪ The production possibility curve PP shows the combinations of luxuries and necessaries.
▪ At point В, the company is producing more of
luxuries for the rich and less of necessaries for the
poor.
▪ Whereas at point D more of necessaries are being
produced for the poor and less of luxuries for the
rich.

12. EFFICIENT USE OF RESOURCES:
BASIC
ECONOMICPROBLEMS
▪ This is one of the important basic problems of an
economy because having made the three earlier
decisions, the society has to see whether the resources it
owns are being utilized fully or not.
▪ If the idleness of resources such as manpower, land or
capital, is due to their male allocation, the society will
have to adopt such monetary or physical measures
whereby this is corrected.

13. EFFICIENT USE OF RESOURCES:
P1
P
P P1
A
B
PRODUCT- X
PRODUCT-Y
D
C
▪ The production possibility curve PP reflects idle resources within the economy at point
A, while the production possibility curve P1P1 reflects the full utilization of the
resources at point В or C.
▪ It is for the society to decide whether to produce more product-Y at point В or more
product-X at point C, or both at point D.
▪ At the level of full employment, where the available
resources are being fully utilized, it is characterized
by technical efficiency or full employment.

14. GROWTH OF ECONOMY:
BASIC
ECONOMICPROBLEMS
▪ The last and the most important problem is to find out
whether the economy is growing through time or is it
stagnant.
▪ Economic growth takes place through a higher rate of
capital formation which is achieve by,
• Replacing existing capital goods with new and more
productive ones
• Adopting more efficient production techniques and
through innovations.

15. GROWTH OF ECONOMY:
P1
P
P P1
A
B
PRODUCT- X
PRODUCT-Y
D
C
AFTER 5 YEARS
NOW
▪ Growth of economy leads to the outward shifting of the production possibility curve
from PP to P1P1 .
▪ The economy moves, say after 5 years, from point A to В or С or D on the P1P1curve.
▪ Point D represents the situation where larger
quantities of both product- X and product- Y
goods are produced in the economy.

16. MEANING
POVERTY
“ Poverty is a state or condition in which a
person or community lacks the financial resources
and essentials to enjoy a minimum standard of life
and well-being that's considered acceptable in
society. ”
Poverty is condition where people's
basic needs for food, clothing, and shelter are
not being met.

17. TYPES OF POVERTY:
POVERTY
▪ Poverty is generally of two types:
1) Absolute Poverty
2) Relative Poverty
▪ TYPES OF POVERTY BASED ON DURATION:
i. Temporary Poverty
ii. Generational Poverty
▪ All other types of poverty can be reduced to Absolute &
Relative poverty.

18. ABSOLUTE POVERTY:
POVERTY
▪ Absolute poverty refers to a condition where a person
does not have the minimum amount of income needed to
meet the minimum requirements for one or more basic
living needs over an extended period of time.
▪ This includes things like:
• Food • Shelter
• Safe drinking water • Education
• Sanitation facilities • Health

19. RELATIVE POVERTY:
POVERTY
▪ Relative poverty is the condition in which people lack the
minimum amount of income needed in order to maintain
the average standard of living in the society in which they
live..
▪ Relative poverty is the poverty when people are
compared to others around them, but may still have
enough money to survive.

20. RELATIVE POVERTY:
POVERTY
▪ According to relative poverty, if you live in an expensive
neighborhood, and you have everything you need to get
by, but do not own luxurious things, you could still be in
poverty when you compered to the people around you
having that luxurious good.
I-Phone
BMW
VILLA
Oppo
HONDA
DUPLEX
A
B
Person-B is relatively poor
with respect to person- A.

21. TYPE OF POVERTY BASED ON DURATION:
POVERTY
TEMPORARY POVERTY
“People or families can be poor because of
some disasters like earthquakes, floods or a
serious illness. Sometimes, people can help
themselves out of this situation quickly if they are
given a bit of assistance, as the cause of their
situations was just one unfortunate event.”

22. TYPE OF POVERTY BASED ON DURATION:
POVERTY
GENERATIONAL POVERTY
“Generational poverty occurs in families where
at least two generations have been born into
poverty. Families living in this type of poverty are not
equipped with the tools to move out of their
situation.”

23. CAUSES OF POVERTY:
POVERTY
▪ HIGH POPULATION GROWTH
Fast growing population has reduced the per capita income of
country. Hence the standard of living has also fallen
considerably. If the country is overpopulated a large part of the
income is spent on consumption and very little is saved for
developmental activities.
This is the basic reason why most of the rural people are poor.
Many of our countrymen do not have a proper job to sustain
themselves and their families. Hence they remain poor.
▪ UNEMPLOYMENT

24. CAUSES OF POVERTY:
POVERTY
▪ INFLATION
The income earned by the poor people is insufficient to buy
them the basic necessities of life. The prices of basic food items
are so high due to high rate of inflation that the little income
earned by them is just insufficient.
The social setup of our country is still backward. There are
many traditions which do not allow fast development of our
society. For example dowry system tends to make a person
poor as he is forced to sell off his lands and property to satisfy
the greed of his daughter's fiancée.
▪ SOCIAL CAUSES

25. CAUSES OF POVERTY:
POVERTY
▪ BACKWARDNESS OF AGRICULTURE
India is an agricultural economy. About 60% of our working
population depends on agriculture directly or indirectly. The
agriculture has failed to respond to the needs of time as it
cannot provide employment to the growing population which
results in poverty. Also the small farmers produces enough for
self consumption and very little is left for sale in the market.
In India, all the developmental plans are guided by the selfish
interests of the politicians. They exploit the weaker sections of
our society.
▪ POLITICAL CAUSES

26. MEASURES TO REDUCE POVERTY:
POVERTY
▪ EMPLOYMENT OPPORTUNITIES
Poverty can be eliminated if the poor people are given the jobs
according to their needs and talents. Self employment can also
be provided to them. Government can set up institutions which
trains them in some practices and skills.
Government should develop cottage, handicrafts and other
small scale industries to in the backward regions of our
country. Moreover this will transfer resources from the areas of
surplus to the deficit solving the problem of urbanization.
▪ ESTABLISHMENT OF SMALL SCALE INDUSTRIES

27. MEASURES TO REDUCE POVERTY:
POVERTY
▪ EDUCATION
Government should take steps to spread awareness for
education so that the people do not have to depend on others
for their income. They can also protect themselves from
exploitation by the greedy traders.
Inflation tends to make poor poorer and rich richer. There
should be a stability in the price level of the country.
Government should also reduce the burden of tax on the poor
and charge more on the richer class. Rationing should be
promoted so that the poor people get the basic necessities if
life at lower price level.
▪ REDUCE INFLATION

28. MEASURES TO REDUCE POVERTY:
POVERTY
▪ CHECK POPULATION GROWTH
Much of the problem of poverty can be solved if the population
of the country can be reduced to a average level. This will make
developmental plans successful and the poor people will have a
greater share in the funds of the government.
Agriculture is the backbone of our country. It provides income
to vast number of people. Hence the government should also
concentrate on it and not only on the industries.
▪ UPLIFT OF AGRICULTURE

29. “ Poverty is nether desirable nor tolerable. We have to
work together to eliminate this social evil so that we do not see a
single beggar on the streets in the future. ”

30. THANK YOU