Question

Explain the central problem of what to produce​

Answer 1

there is the problem of choice, the economy has to decide which goods and services are to be produced. ... When an economy has taken a decision as to what goods or services to be produced, then it has to be about its quantity

Answer 2

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Explain the central problem of what to produce❓

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Central Problems of an economy:

1. What to produce.

As there is the problem of choice, the economy has to decide which goods and services are to be produced. For example, which of the consumer goods such as wheat, rice, cloth are to be produced and which of the capital goods such as machines and tools are to be produced.

When an economy has taken a decision as to what goods or services to be produced , then it has to be about its quantity. How much of consumer goods and capital goods are to be produced.

For example, if an economy decides to produce rice and wheat within a given period with limited resources then it will have to use less of machineries.

ii. How to produce

This studies how to organise production. It is the second basic economic problem of resource allocation.

It is concerned with the choice of technique production. For example, production of cloth is possible either by handlooms or by modern machines.

This problem is concerned with the efficient use of resources which implies more production with low cost.

Thus, one needs to decide the efficient technique of production which uses the least amount of scarce resources to provide the same amount of output.

iii. For whom to produce

This studies the problem of distribution of final goods and services or the problem of distribution of income.

It has two aspects. The first aspect relates to personal distribution and the second aspect relates to functional distribution.

Personal distribution refers to output/income share of individuals or households in society.

Functional distribution refers to income share of different factors of production.

Here, the problem is whether allocation of resources is promoting equality or not.

Equality is a social virtue, and inequality may induce high saving, investment and hence high rate of growth.

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