Briefly explain the central problems of an economy
Answers
Answer:
Some of the central problems that are faced by every economy of a country are as follows: Production, distribution and disposition of goods and services are the basic economic activities of life. In the course of these activities, every society has to face scarcity of resources.
Answer:
Central problems is also known as ALLOCATION OF RESOURCES.
1. The central problem of ' what to produce' refers to which goods and services will be produced in an economy and in what quantities. An economy has to produce those goods and services where there will be maximum social utility. This problem is studies under price theory.
2. The central problem of ' how to produce' refers to what technique of production should be used to produce goods. An economy has to select that technique which maximize the output at minimum cost. This problem studies under theory of production.
3. The central problem ' from whom to produce ' is related to distribution of produced goods and services among factors of production in the form of rent , wages, interest and profit . This is explained under the theory of distribution.
For the selection of an opportunity , the sacrifice of next best alternative use is called Opportunity Cost.