Basic problems of economy
Answers
Answer:
unemployment ,imbalance distribution of income,
1. What to produce?
2. How to produce?
3. For whom to produce?
Explanation:
1. What to Produce:
This problem involves selection of goods and services to be produced and the quantity to be produced of each selected commodity. Every economy has limited resources and thus, cannot produce all the goods. More of one good or service usually means less of others.
The problem of ‘What to produce’ has two aspects:
(i) What possible commodities to produce: An economy has to decide, which consumer goods (rice, wheat, clothes, etc.) and which of the capital goods (machinery, equipment’s, etc.) are to be produced. In the same way, economy has to make a choice between civil goods (bread, butter, etc.) and war goods (guns, tanks, etc.).
This problem refers to selection of technique to be used for production of goods and services. A good can be produced using different techniques of production. By ‘technique’, we mean which particular combination of inputs to be used. Generally, techniques are classified as: Labour intensive techniques (LIT) and Capital intensive techniques (CIT).
i. In Labour intensive technique, more labour and less capital (in the form of machines, etc.) is used.
ii. In Capital intensive technique, there is more capital and less labour utilization.
3. For Whom to Produce:
This problem refers to selection of the category of people who will ultimately consume the goods, i.e. whether to produce goods for more poor and less rich or more rich and less poor. Since resources are scarce in every economy, no society can satisfy all the wants of its people. Thus, a problem of choice arises.
Goods are produced for those people who have the paying capacity. The capacity of people to pay for goods depends upon their level of income.