Question

5) Why is the coordination problem important in the context of development?

Answer 1

Coordination problem refers to the problem in which a number of firms fail to achieve a more desirable equilibrium because of their inability to coordinate decision-making more effectively. In order to achieve economic development, an economy needs to utilize its resources in the most efficient manner to gain the maximum benefits out of its resources. Coordination problem comes in the way of economic development and coordination problem results in economic efficiency because of which an economy fails to utilize its resources effectively.