Why do Economic problems arise:

Economic problem arises mainly due to two reasons- (i) human wants are unlimited (ii) means to
satisIy human wants are scarce. The problem oI scarcity is Iaced by an individual and the
society. With wants unlimited and resources scarce, our wants cannot be IulIilled. This gives rise
to the problem oI how to use scarce means to attain maximum satisIaction. Economic problem
arises Irom the scarcity oI resources relative to human wants.
Thus unlimited wants and scarce resources lead to the origin oI the basic economic problem in
all types oI economies, rich or poor. Scarcity oI resources requires that eIIicient use oI them be
made so that maximum possible satisIaction oI the people is achieved. Due to scarcity oI
resources we Iace problem oI choice.
The choice with regard to which goods and in what quantities are to be produced. Problem oI
scarcity leads to the origin oI the problem oI choice oI best possible pattern oI allocation oI
resources. The economic problem can be divided into diIIerent parts. They are given as below.
1. Problem of allocation of resources:
The problem oI allocation oI resources arises due to the scarcity oI resources. That is why the
question oI scarcity goods Ior production implies which wants should be satisIied and which
should be leIt unsatisIied. The problem oI allocation oI resources deals with the question oI what
to produce and how much to produce.
II the society decides to produce a deIinite commodity in volume, it has to withdraw some
resources Irom the production oI other goods. More production implies more resources. More
production oI a desired commodity can be made possible only by reducing the quantity oI
resources used in the production oI other goods. Resources being scarce iI the society decides to
produce one good, the production oI some other goods would have to be cut down.
The problem oI allocation deals with, the question whether to produce capital goods or
consumer goods. II the community decides to produce capital goods, resources will have to be
withdrawn Irom the production oI consumer goods. In the long run the investment on capital
goods will augment the production oI consumer goods.
In an economy both capital as well as consumer goods is oI equal importance. So the decision is
to make social adjustment between the productions oI the two.
2. The problem of all economic efficiency:
Resources should be, most eIIiciently used as it is scarce. Thus it is essential to know iI the
production and distribution oI national product made by an economy is eIIicient. The production
becomes eIIicient only iI the productive resources are so utilised that any reallocation does not
produce more oI one good without reducing the output oI any other good.
y eIIicient distribution means that any redistribution oI goods cannot make some one better oII
without making anyone else worse oII. The ineIIiciencies oI production and distribution exist in
all types oI economies. The welIare oI the people can be increased iI these ineIIiciencies are
ruled out. Some cost will have to be incurred to remove these ineIIiciencies.
II the cost oI removing these ineIIiciencies oI production and distribution is more than the gain,
then it is not worthwhile to remove them.
. The problem of full-employment of resource:
In view oI the scarce resources a very pertinent questions may arise in the mind that whether all
available resources are Iully utilised. A community should achieve maximum satisIaction by
using the scarce resources in the best possible manner. There should not be wrong use oI
resources or it should not be allowed to go waste.
ut in capitalist economy the available resources are not Iully utilised. In times oI depression
there are many willing workers to work but they go without employment. It supposes that the
scarce resources are not Iully utilised in a capitalist economy.
4. The problem of economic growth:
II the productive capacity oI the economy grows, it will be able to produce progressively more
goods as a result oI which the living standard oI the people will rise. The increase in productive
capacity oI an economy is called economic growth. There are various Iactors aIIecting economic
growth. The problems oI economic growth have been discasted by numerous growth models.
Some oI these growth models are Harrod-Domar model, neoclassical growth models oI Solo and
Swan, Cambridge growth models oI Kaldor and Joan Robinson etc. This part oI economic
problem is studied in the economies oI development.
Thus an economy has to solve a number oI problems. ut the basic cause behind all these
problems is resource scarcity.
main economic functions of a modern government in a
mixed economy :
In a mixed economy, the governments besides public sector play an important role in the
economic liIe oI the state through the revenue and expenditure measures oI its budget. The
important Iunctions are:
(i) Allocation Iunction
(ii) Distribution Iunction
(iii) Stabilization Iunction
(i) llocation Function:
Government has to provide Ior public goods. Public goods such as national deIense, government
administration and so on are diIIerent Irom private goods. These goods can not be provided
through market mechanism but are essential Ior consumers and thereIore, government has to
provide them. ecause oI that government has to allocate resources between private goods and
public goods.
Private goods are limited to some individual or individuals but public goods are available to all.
Secondly, private goods are available to those only who can buy them but this is not the case
with regard to public goods. These are available to those also who can't aIIord them Iinancially,
(ii) Distribution Function:
Through its tax and expenditure policy government aIIects distribution oI personal income oI
households in a manner which is just and Iair. As such it taxes the rich and spends Ior the
schemes which beneIit more the poor.
(iii) Stabilization Function:
Economy oI a country is aIIected by economic Iluctuations such as conditions oI boom and
depression. Such changes beneIit some and harm others. In such a situation appropriate policy
measures are required by the government to aIIect the levels oI aggregate demand. Such
measures are called stabilization measures. These measures aim at avoiding the situations oI
inIlation and unemployment.
Essay on the Role of Banking in India's Developing
Economy
One oI the major considerations that led to the nationalization oI the Iourteen major commercial
banks oI India in 1969 was the Iact that banks, in general, had been negligent oI the vital priority
sectors oI the economy, viz., agriculture and small-scale industries. The commercial banks had
remained largely indiIIerent to the credit needs oI the Iarmers Ior agricultural operations and land
improvement. A handIul oI people were able to exploit the bank Iinance to serve their own
individual interests and convenience. Very oIten, they used bank Iunds Ior the hoarding oI
essential articles and Ior specialization, thus nurturing anti-social elements. Nationalization
brought about a major policy shiIt in the working oI these banks.
The economic development oI our country depends more on real Iactors like the industrial
development, modernization oI agriculture, organization oI internal trade and expansion oI
Ioreign trade, especially exports, and less on the monetary Iactors contributed by banking
Economic planning like laying down oI speciIic targets and allocating particular sums oI money
that constitute the economic policy oI the government also plays a signiIicant role. Still we
cannot under-estimate the importance oI banking and the monetary mechanism.
One oI the most important problems oI a developing economy is that oI capital Iormation. There
is a good deal oI diIIerence between hoarding and saving and the people in the countryside have
to be made to realize the diIIerence. This can be easily done by banks. They can undertake to
educate the rural populace and thus mobilize their savings. A number oI leading economists have
conIirmed the Iact that the amount oI capital available in India Ior investment is surprisingly and
inexplicably large. Only we need exploiting this idle capital. Who else can exploit it, iI not
banks? oth in rural and urban areas, huge amounts oI money are wasted on celebrations like
marriages and births. II banks can oIIer handsome interest on savings, people can be induced to
direct their savings Irom wasteIul activities to banks. Promoting attractive deposit schemes needs
some very active work on the part oI the banks, but it can certainly mobilize a large amount oI
saving Ior capital Iormation.
The Government oI India has now undertaken a large number oI projects Ior the economic
reconstruction oI the country. anks can generate an adequate volume oI credit and conduct it
along useIul productive channels. They can distinguish between the essential and non-essential
Iactors oI the economy between productive and non-productive investment, between speculative
arid non-speculative borrowing and thus help in the growth oI the economy.
Two other acute problems Iaced by our low and middle income groups are the housing problem
and gnawing unemployment problem. II the banks undertake to help these groups, they will also
be making a signiIicant contribution to our economy. It will also help in removing the economic
imbalance oI the various sections oI our society.
eIore nationalization, our banks could not play this constructive role expected oI them. ut
aIter nationalization, the entire banking machinery has now been geared to the economic
development oI the country. They have started looking aIter the needs oI the small Iarmer and
the new entrepreneur. It is earnestly hoped that the Government will take some more positive
steps to ensure that the real beneIits oI an organized banking system percolate down to the poor
illiterate masses oI India.
Positive approach:-
ORGIZTIO BEH'IOR
Organizational behavior is an academic discipline concerned with describing, understanding,
predicting, and controlling human behavior in an organizational environment. The Iield is
particularly concerned with group dynamics, how individuals relate to and participate in groups,
how leadership is exercised, how organizations Iunction, and how change is eIIected in
organizational settings. When organizational behavior theory is directed speciIically at ways in
which management can control an organization, it is sometimes known as organi:ational
behavior management, or OM.
Organizational behavior is a Iairly new discipline, dating back to the early 20th century, although
some experts suggest that it came into existence right aIter the U.S. Civil War. Organizational
behavior has evolved Irom early classical management theories into a complex school oI
thought, and it continues to change in response to the dynamic workIorce in which today's
businesses operate.
THE CSSIC MGEMET SCHOO
In 1911, Frederick W. Taylor's book, !rinciples of Scientific Management, was published. This
book marked the Iirst serious attempt to publish the results oI scientiIic management studies
aimed at motivating workers to produce more. Taylor was the best known oI a group oI people,
primarily mechanical engineers, who applied time-and-motion study concepts in the workplace.
These engineers Iocused on the task concept to show that workers could be motivated to produce
more, especially iI they were oIIered an incentive to do so.

The task concept centered arouand the idea that iI managers planned workers' tasks at least one
day in advance, production would increase. Taylor devised a diIIerential piece-rate system based
on two diIIerent rates oI pay. His system was simple: workers who did less than the expected
output received a low rate oI pay. Those who exceeded the standard earned more money. That
was a radical idea Ior the time. It separated the worker Irom the machine and indicated that
employees could control how much they produced. Taylor also suggested in his approach that
money motivated workers. This, too, was a unique idea. This approach became known as Theory
X, and it would later be distinguished Irom other theories that took a diIIerent view oI worker
motivation and human nature. What Taylor did not do, however, was take into account group
behavior. He, like most classical managers, had no concept oI the importance oI workers as
members oI groups. The next wave oI theorists, the human relations experts, addressed the issue
oI group behavior.
THE HWTHORE EXPERIMETS
Human relationship tried to add a human dimension to classical theory in their studies. They did
not try to reIute the classical management proponents. Rather, they introduced the idea that
workers would be willing to accept as part oI their reward humane treatment, personal attention,
and a chance to Ieel wanted. To prove their point, human relationship embarked on a series oI
experiments.
Perhaps the most signiIicant experiments were the Hawthorne experiments. The studies began
in 1924 at the Hawthorne Works, part oI the Western Electric Company, located in Cicero,
Illinois. The researchers' original goal was to measure the eIIect oI illumination on output. In
simpliIied terms, what they actually learned was that an individual's work perIormance, position,
and status in an organization are determined not only by the individual, but by group members,
too. They also learned that workers Iormed cliques that aIIected their production and that there
were certain codes oI conduct members oI individual cliques were expected to Iollow. The
Hawthorne studies opened the door to more experiments by other human relationship.

HUMAN RESOURCES THEORY
The next group to take center stage in the organizational behavior arena postulated that a
manager's role was not to control workers, but to Iacilitate employee perIormance. According to
human resources experts, people work to make a living, but their eIIorts go Iar beyond just
laboring. They also work to IulIill certain needs, e.g., contributing to organizational objectives,
attaining a Ieeling oI accomplishment, and using their creativity in the work environment.
Managers were well advised to keep all these needs in mind when dealing with workers.
According to the human resources theorists, managers should apply mutual goal-setting and
problem-solving approaches to their workIorce members. Their approach has been termed
Theory Y.
Managers were encouraged to make use oI whatever training was necessary to ensure maximum
perIormance. The training could take a variety oI Iorms, i.e., technical, human, or conceptual.
They were also advised to open communication lines in all directions to promote organizational
eIIectiveness. AIter all, the theorists emphasized, workers welcome selI-direction and selI-
control and will perIorm well when managers take an interest in their lives. In short, the human
resources advocates said, managers should place their primary emphasis on using workers as iI
they are important human assets.
THE SYSTEM PPROCH TO
ORGIZTIO BEH'IOR
Modem theorists apply a Iive-part system approach to organizational behavior:
O Lhe lndlvldual
O Lhe formal organlzaLlon
O Lhe lnformal organlzaLlon
O Lhe fuslon process ln whlch Lhe flrsL Lhree modlfy and shape one anoLher
O Lhe physlcal envlronmenL
Each part is essential. None can exist alone in the system. This system approach is the basis Ior
modem organizational theory, which is Iounded on behavioral science studies.
THE BEH'IOR SCIECES
There are three behavioral sciences: psychology (the study oI individual behavior), sociology
(the study oI social behavior within societies, institutions, and groups), and anthropology (the
study oI the origin, cultural development, and behavior oI humans). Each has made important
contributions to the study oI organizational behavior.
From an organizational standpoint, psychologists are concerned with the processes oI learning,
perception, and motivation. Sociologists study the various organizations that compose society,
e.g., political, legal, business, governmental, and religious bodies. Finally, anthropologists are
interested in the impact oI culture on behavior. The three disciplines have had a major impact on
the study oI organizational behavior.
Organizational behavior scientists study Iour areas: individual behavior, group behavior,
organizational structure, and organizational processes. They investigate Iacets oI these areas like
personality and perception, attitudes and job satisIaction, group dynamics, politics and the role oI
leadership in the organization, job design, the impact oI stress on work, decision-making
processes, the communications chain, and company cultures and climates. They use a variety oI
techniques and approaches to evaluate each Iacet and its impact on individuals, groups, and
organizational eIIiciency and eIIectiveness.
In regard to individuals and groups, researchers try to ascertain why people behave the way they
do. They have developed a variety oI models designed to explain individuals' behavior. They
investigate the Iactors that inIluence personality development, including genetic, situational,
environmental, cultural, and social Iactors. Researchers also look at personality types such as
authoritarian (people who adhere closely to conventional values) and dogmatic (people who are
extremely rigid in their belieIs). They want to Iind out what causes a person to Iorm either type
oI personality and learn whether one or the otheror neitheris a positive trait Ior people in the
business world.
Researchers have also studied a number oI concepts, including:
LereoLyplngLhe process of caLegorlzlng people based on llmlLed lnformaLlon
2 alo effecLLhe use of known personal LralLs as Lhe basls for an overall evaluaLlon
3 9ercepLual defenseLhe process of screenlng ouL or dlsLorLlng lnformaLlon LhaL ls dlsLurblng or
LhaL people do noL care Lo acknowledge
4 9ro[ecLlonpeople aLLrlbuLe Lhelr own undeslrable LralLs or characLerlsLlcs Lo oLhers
They evaluate perception versus reality, individuals' locus oI control (whether they believe they
or outside Iorces are in control oI their lives), and common problems resulting Irom these
personality traits and characteristics. Finally, they look at an individual's attitudes and correlate
them to job satisIaction and job perIormance.
THE IMPORTCE OF 1OB
STISFCTIO STUDIES
The study oI job satisIaction is central to organizational behavioral scientists. Companies want to
know why their employees are or are not satisIied. II they are not happy, executives look to the
behavioral scientists Ior ways to improve individuals' attitudes and to suggest ways oI improving
the work environment. This implies that the theorists have to look well beyond the tangible
Iactors inIluencing job satisIaction, such as pay, beneIits, promotional opportunities, and
working conditions. They have to study how groups inIluence the workplace and individuals'
expectations.
THE DYMICS OF GROUP BEH'IOR
Perhaps the most basic issue scholars have addressed in the area oI group behavior is the
deIinition oI "group." They have agreed that there is no one deIinition. ThereIore, they have
looked more at why people join groups, types oI groups, and group activities and goals. Studies
have Iocused on group norms, individuals' behavior within groups and how it changed, their
roles within groups, and what groups could accomplish that individuals could not. Many
researchers believe that a group is more than the sum oI the individual members, even though its
goals, interactions, and perIormance are determined primarily by the individuals within it.
In an era when teamwork and collaboration Iigure prominently in many corporations' stated
values, organizational behavior theory suggests some models Ior how people work together well,
and conversely, how collaboration breaks down. As in most social science theories, there is no
exact Iormula Ior how people collaborate in a work environment, but there are some signiIicant
social and psychological dimensions that inIluence these behaviors. Many oI them relate to
communication styles and methods. While electronic mail has been extolled as an important tool
Ior eIIicient, speedy, and inexpensive communications, some evidence (mostly anecdotal at this
stage) suggests that mechanical means oI communication like e-mail hinder eIIective group work
by Iostering Ieelings oI mistrust, distance, and apathy. y contrast, removing hierarchical and
personal barriers and engendering open, Iace-to-Iace discussion appear to improve group
interactions.
In another important area, organizational behavior scientists draw a distinction between
leadership and management. They deIine management as the process oI accomplishing tasks,
whereas leadership is the process oI getting things done by inIluencing other people. Another
question is whether leaders are "born or made." In order to answer that question, researchers
have sought common characteristics shared by leaders. They have Iound a Iewintelligence,
dependability, responsibility, social activity, and high originalitybut there appear to be too
many competing variables to Iorm any universal conclusions oI common leadership
characteristics.
POWER, POITICS, D COFICT
Organizational behavior scientists have identiIied Iive basic types oI power managers and leaders
use to inIluence their subordinates: reward, coercive, legitimate, reIerent, and expert.
Reward power, which is based on an individual's expectation oI receiving desired outcomes, was
Iound to be a positive Iorce. However, iI the members oI a group do not believe they will be
rewarded Ior their eIIorts, the person in a position to oIIer rewards will not be able to inIluence
the individuals. Similarly, managers who rely on coercive power, which is based on Iear, will
probably be unable to inIluence workers, especially group members, Ior a long period oI time.
The other three types oI power also have advantages and disadvantages. For instance, legitimate
power, which exists as part oI a manager's position in the hierarchy, is oIten ignored by workers
who do not respect the individual Iilling the role. ReIerent power, which is based on the
manager's charisma, inIluences only those individuals or group members who are swayed by the
charismatic leader. Finally, expert power, which is power acquired Irom experience and learning,
is a positive Iorce, but only to the degree managers can convince individuals and group members
that their leadership skills go beyond expertise alone.
People attempting to exercise power in the organization oIten resort to political tactics to do so.
They blame others Ior mistakes, Iorm power coalitions, praise co-workers and subordinates when
they think it will help them achieve goals and reinIorce their images. In short, they use every
stratagem possible to win Iriends and inIluence people. In the process, however, they oIten create
conIlict. This prompted researchers to study conIlict and its possible solutions.
Organizational behavior scientists recognize that conIlict exists at both the individual and group
levels. They have devised a number oI ways to deal with it. Among them are mutual problem
solving, compromise, and avoidance. SigniIicantly, they discovered that conIlict resolutions are
most oIten temporary, and they have looked Ior ways to make them more permanent. In order to
Iind permanent solutions, they have perIormed more in-depth studies oI organizational structure
and processes and how both aIIect individuals and groups.
ORGIZTIO DESIG D
PROCESSES
Organizational behavior scientists have conducted extensive studies on job deIinitions and the
tasks a job comprises. They have looked at how each job Iit into diIIerent groups within the
organization, a process called departmentalization. The researchers have studied managerial
spans oI control, i.e., the number oI people an individual manager can manage most eIIectively.
The process required that researchers reduce to its most basic level each task perIormed and then
Iind ways to perIorm jobs more eIIiciently and eIIectively.
Many researchers have suggested viable ways that organizations could restructure jobs and
relationships to stimulate job satisIaction and productivity simultaneously. They have devised
better communications programs, identiIied the elements that create stress, and explained how it
could be better managed.
Organizational behavior scientists perIormed extensive studies on company cultures and climates
with an eye to upgrading employees' quality oI liIe in the workplace. They have sought ways to
include more people in the managerial and decision-making processes. Their suggestions have
included such techniques as quality circles and participative management programs.
Quality circles, which are team approaches to identiIying and resolving work-related problems,
became popular in some businesses. So, too, did participative management eIIorts, which gave a
wider variety oI people opportunities to comment onand implementnew ideas in the
workplace. One prominent organizational behavior scientist, William Ouchi, recommended that
American companies integrate more Japanese management concepts into their management
practices. His approach became known as Theory Z.
The ideas promulgated by organizational behavior scientists have caught on in managerial
circles. Not surprisingly, not all oI the programs can be used by all companies. II there is one
thing that researchers have recognized, it is that no two companies are alike. To compensate Ior
the dissimilarities, behavioral scientists reIormed detailed cultural proIiles to determine which
programs Iit individual companies' needs. These proIiles have illustrated the importance oI
culture in the Iield oI organizational behavior. Researchers have examined how company
cultures control individual and group behavior, promote innovation, Ioster personnel
commitment, and so on.
ORGIZTIO CHGE
Another subject oI special interest to organizational behavior scholars is how change aIIects
people in an organization and how the process oI change can be managed to maximize its
success and minimize unintended disruptions. Change is compelled by many sources: social and
demographic trends, economic cycles, competition, technology, and politics and regulation, to
name a Iew. Scholars distinguish between change that is incremental and ongoing, sometimes
called Iirst-order change, and change that is radical and episodic, termed second-order change.
While each Iorm can have both positive and negative consequences, radical changes are
commonly seen as requiring the most caution and skill at pulling oII.
For example, one oI the most visible trends in corporate America since the 1980s has been the
rise oI sudden mass layoIIs at large corporations, or downsizing. This clearly represents one oI
the largest kinds oI changes a company might Iace, and its scope aIIects not only the workers
who lose their jobs but also those who remain.
Researchers have Iound that downsizing can have both positive and negative eIIects on the
employees who stay on. In some cases, Ior example, layoIIs can induce employees to work
harder and engage in other behaviors that beneIit the company. One obvious explanation is that
these workers might Iear losing their jobs iI they don't improve their perIormance, but there are
likely other reasons as well, such as a move to Iill a perIormance vacuum leIt by the departing
workers. Still, other workers may respond by diminishing their perIormance; they may be
demoralized by the corporate policies and may lower their mental and emotional investment in
their jobs.
However, studies in organizational behavior suggest that all oI these responses aren't inevitable.
Scholars have suggested that the way in which the company goes about managing the change, in
this case, the events leading up to and Iollowing downsizing, can have a signiIicant eIIect on
how employees react. This is not to say all negative reactions can be eliminated, but that there is
a good chance they can be reduced. In the downsizing example, taking actions that Ioster trust in
the management (such as open communication or demonstrating objective and consistent criteria
Ior decision making) and that increase employee Ieelings oI empowerment (letting workers have
a say in some aspects oI change) have been posited as methods oI reducing some oI the negative
shocks oI massive organizational change. Similar principles apply to managing other Iorms oI
organizational change.
More broadly, scholars like psychologist Kurt Lewin have identiIied basic models Ior managing
change in organizations. In Lewin's widely cited three-step process, outlined in his 1951 classic
ield Theory in Social Science, management must Iirst "unIreeze" the status quo in the
organization, Iacilitate a move to a new set oI practices or environment, and then solidiIy or
"reIreeze" the new practices or environment into a permanent state. The process oI unIreezing
the current status involves introducing new policies or initiatives that begin to actively move
employees away Irom the old way oI doing things and/or removing policies or practices that tie
them to the old. The second step, the shiIt to the new practices, is the Iormal implementation oI
the changes, Ior example, reorganizing a division or closing a branch oIIice. Third, during
reIreezing management must solidiIy the changes by ensuring all the policies and practices are
now geared toward maintaining the new equilibrium, and not throwbacks to the supplanted
practices or lingering transition measures that create an atmosphere oI instability or uncertainty.
THE FUTURE OF ORGIZTIO
BEH'IOR
The international economy has taken on added importance in organizational behavior circles in
recent years, as international companies have special requirements and dynamics to contend
with. Researchers currently are studying such things as communications between and among
Ioreign business operations, cultural diIIerences and their impact on individuals, language
diIIiculties, motivation techniques in diIIerent cultures, as well as the diIIerences in leadership
and decision-making practices Irom country to country.
Today, organizational behavior scientists are dealing with a wide range oI problems conIronting
the business world. For instance, they continue to study downsizing, career development in the
global economy, social issues such as substance abuse and changes in Iamily composition, and
the global economy. They are trying to determine just what eIIects such Iactors are having on the
workplace and what can be done to alleviate associated problems.