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NATURE OF ECONOMIC PROBLEMS

The economic activity of a society consists of activities related to the production and consumption of goods and services. Since earliest times, the primary function of organized society has been economic in nature. The other elements of civilized society-architecture, literature, music, etc.- emerge only after the material needs of the society have been amply provided for. Poor societies do not build great pyramids, erect magnificent cathedrals, or place men on the moon. Everyday, all of us are involved in activities that are primarily economic in nature. To fully understand these activities, we need to create a new perspective of the world-an economic perspective. Let’s begin this task with some definitions.  

Goods are tangible outputs of the production process-the good has a physical existence Production and consumption can be separated by time and place. The farmer grows the wheat in Iowa in May. The girl eats the bread in Georgia in September. Goods include consumer durables, consumer. nondurables, and capital (producer durable).

Services are intangible outputs of the production process-services have no physical existence. As a result, production and consumption usually occur at the same time and place. The professor gives a lecture to students in the classroom. Services include education, repair, finance, government, energy, and telecommunications.

Production is the creation of goods and services by combining various elements in the production process. For example, the farmer grows a wheat crop by combining his labour with the land, seed, fertilizer, and machinery.

 Consumption is the destruction of goods and services to satisfy the wants and needs of people. A person who is hungry eats a meal, and the food ceases to exist as food.