Question

Explain the concept of the central problem of How to produce with respect to the
mixed economy and how it can be solved? Illustrate with an example.

Answer 1

Answer:

HOW TO PRODUCE?

There are various alternative techniques of producing a commodity. For example: cotton cloth can be produced using handlooms, power looms, or automatic looms. production with handlooms involves use of more labour & production with automatic looms involves more use of machines & capital. A society has to decide whether it will produce cloth using labour intensive techniques or capital intensive techniques. Likewise, all the goods are decided on this basis. Obviously, the choice of production would depend on the availabilty of different factors of production( i.e. labour & capital) & their relative prices. It is in the societiy's interest to use those techniques of production that make the best use of the available resources.

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