Question

with the help of suitable example explain the problem of for whome to produce

Answer 1

1.Economic Problem Problem of choice or a problem of allocation of resources is the major economic problem which arises due to scarce resources and alternative uses of resources. With this meaning we have several other aspects also to study which are:

(i) Scarcity It refers to the situation where demand for a good exceed its supply.

(ii) Choice It refers to the process of selection from available limited resources .

Or in more simple way

‘Scarcity causes choice’

‘Choice implies decision-making’

‘Decision-making’ relates to usage of limited resources in a manner that consumer maximises his satisfaction, producer maximises his profits and a nation maximises its social welfare.

2.Central Problems of An Economy At the micro level, every economy has to face three central problems, i.e. what to produce, how to produce and for whom to produce.

(i)What to produce Problem of ‘what to produce’ arises as the economy has limitedresources. In an economy because of scarcity of resources, producers are unable to produce everything in desired quantity, a but they will have to make a choice as to which one is important as a whole, so that limited resources can be rationally managed. Problem of ‘what to produce’ involves two fold decisions; kinds of goods to be produced and quantity of goods to be produced.

(ii)How to produce It is concerning with, how to organise production. This problem is related to the choice of technique of production. It arises due to the availability of various techniques for the production of a commodity such as labour intensive technique and capital intensive technique. Depending upon the availability of resources, either technique is used.

(iii) For whom to produce This is essentially the problem of distribution of income between (a) the different groups of the society and (b) now and in the future. As to income distribution between the different groups with in a society an economy has to find ways and means to get a distribution that promotes social welfare at present and on the other hand do not compromise the need of the future generation. Distribution of income could be of two types:

(a)Factoral distribution

(b)Interpersonal distribution

3.Production Possibility Curve (PPC) It is a curve which shows various production possibilities with the help of given limited resources and technology. It is also known as production possibility frontier and transformation curve. it is a tool which can help to solve the central economic problems.
From the given curve following conclusions are drawn

(i) PPC is always concavg to the origin because of rising MRT (Marginal Rate of Transformation)

(ii) PPC slopes downward because of inverse relationship, between the production of the
two goods, i.e. production of both the goods cannot be increased simultaneously

4.Shift in the Production Possibility Curve

The rightward shift of Production Possibility Curve indicates the increase in the resources or productive capacity of the economy, which expands production of both the goods. On the other hand, the leftward shift of Production Possibility Curve indicates the decrease in the resources or productive capacity of the economy, which contracts production of both the goods