Question

Explain the three central problems with one suitable example of each

Answer 1

                                Three central problems

What to Produce:

• This issue includes the selection of products and services to be manufactured and the amount of each chosen product to be manufactured.
• Every economy has restricted resources and is therefore unable to generate all the products. Usually, more than one good or service implies less of others.

Example:

Only by decreasing the output of other products can more sugar be produced.

How to Produce:

• This issue relates to the choice of techniques to be used to manufacture products and services.
• A good can be created using various production methods. By technique we mean what specific input mix to use.

Example:

It is possible to produce textiles either with a lot of labor and a little capital or with less labor and more capital. In determining the method to be used, the availability of variables and their relative prices enables.

For Whom to Produce:

• This issue refers to selecting the category of people who will ultimately consume the goods, i.e. whether to produce goods for the poorer, the less rich, or the richer and the poorer.

Example:

The allocation of revenue among manufacturing variables.