explain any three central problem of an economy
Answers
Answer:
1. What to produce?
2. How to produce?
3. For whom to produce?
Explanation:
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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. Because of this scarcity, every society has to decide how to allocate the scarce resources.
It leads to following Central Problems that are faced by every economy:
1. What to produce?
2. How to produce?
3. For whom to produce?
These problems are called central problems because these are the most basic problems of an economy and all other problems revolve around them.
These 3 problems are studied under the problem of ‘Allocation of Resources’.
Allocation of Resources (Studied under Microeconomics):
Allocation of resources refers to the problem of assigning the scarce resources in such a manner so that maximum wants of the society are fulfilled. As resources are limited in relation to the unlimited wants, it is important to economize their use and utilize them in the most efficient manner.
Answer:
The three major central problems of an economy are:
a. What to Produce: It involves deciding the final combination of goods and services to be produced, ie, it involves selection of goods and services and the quantity of each, that the economy should produce.
b. How to Produce: It involves deciding the technique of production, ie; whether selected goods be produced, with more labour and less capital (known as Labour Intensive Technique) or with more capital and less labour (known as Capital Intensive Technique).
c. For whom to Produce: It involves deciding the distribution of output among people, ie; it involves selection of the category of people who will ultimately consume the goods.