Discuss the central problems of an economy

The central problems of an economy revolve around these factors. • What to produce? • How to produce? • For whom to produce? 1. What to produce? It is one of the central problems that arise in an economy. It is related to the type of goods and services that need to be produced and the quantity to be produced. Since resources are in limited quantities, producing more of one good will result in less production of the other. 2. How to produce? This aspect deals with the process or technique by which the goods and services can be produced. Generally, there are two techniques that can be used for producing, which are: • Labour Intensive Techniques • Capital Intensive Techniques The choice of technique for production depends on the availability of the resource in that nation, and hence resource allocation becomes a challenge. 3. For whom to produce? This problem deals with determining the people who will be the final consumers of the goods produced. As the resources are scarce in an economy, it becomes difficult to cater to all sections of society. It leads to the creation of a problem of choice in an economy as a good that may be in demand among a section, may not be in demand for another section of the society. Such a situation arises due to the difference in income distribution among the population, which causes a change in buying behaviour.

• Capitalist economies has private ownership where utilization of resources takes place for private gains, therefore here price mechanism takes place very smoothly without any government intervention to resolve the centrally based economic problems. • Socialist economies has public ownership where utilization of resources takes place forsocial welfare, here the centrally based planning authority solves all the central economic problems keeping in mind the national priorities. • In a mixed economyboth private as well as public enterprises utilize the resources for theproduction of goods and services for personal as well associal gains. Therefore, the private sector generates price mechanism in theeconomy to solve to the centrally based economic problems whereas the publicsector depends upon an efficient economic plan to be executed to eradicatethese problems.

Every economy faces three central problems due to scarce availability of resources. This scarcity challenges the best possible usage of these available resources to fulfil the unlimited demands. The three central problems of an economy are as follows: • What to produce and in what quantities? The very first problem encountered by any economy is to decide what goods are to be produced and in what quantities or amount. There is a lot to be decided; whether to produce consumer goods or luxury goods; agricultural goods or investment goods; whether to cater education and healthcare sector or to strengthen country’s military. An appropriate example was set by the Latin American nation Costa Rica; they dismantled their military in 1949 and invested the money, which earlier was spent on the maintenance of their army, on education and healthcare. Once it is decided, what to produce, the next decision is to estimate the amount or quantity of the production. So the economy constantly struggles to choose what to produce and in what quantities. • How to produce? The second problem that arrives is how to harvest the given or available resources? That is, what technique is to be used for producing various goods and services? It depends majorly on the nation’s endowment of resources in deciding the optimum technique. It has to be decided whether efficient production is possible through labour-intensive or capital-intensive techniques. This decision rest on the present economic conditions ...

The core economic activities are the production, distribution, and disposition of products and services. During these activities, a community faces scarcity due to the scarcity of restricted resources and the greedy nature of human desires. The difference between supply and demand causes an economy’s basic problems to emerge. Central Problems of an Economy There are three reasons behind the central problems of an economy: • What to Produce and in What Quantity? • How to Produce? • For Whom to Produce? What to Produce and in What Quantity? This issue is about making judgments about which commodities to produce and what quantities to produce. There is a scarcity of labour, land, machinery, capital, equipment, tools, and natural resources. As a result, it is impossible to meet society’s demands. As a result, it’s critical to determine what goods and services must be produced and in what quantities. For example, if Rita owns a plot of land, she must consider what crop she should grow on it. Let’s say she has the option of growing Jowar or wheat. Given the scarcity of natural resources, such as land, she must decide whether to use the land to grow Jowar, wheat, or both. Aman must consider the quantity of the crop he wishes to produce as he has made his selection about the goods to be produced. Five quintals, ten quintals, or 100 quintals, for example. Almost everyone in society is confronted with the challenge of “what to produce and in what quantities to make.” In addition, an...

Every economy faces three central problems due to scarce availability of resources. This scarcity challenges the best possible usage of these available resources to fulfil the unlimited demands. The three central problems of an economy are as follows: 1. What to produce and in what quantities? The very first problem encountered by any economy is to decide what goods are to be produced and in what quantities or amount. There is a lot to be decided; whether to produce consumer goods or luxury goods; agricultural goods or investment goods; whether to cater education and healthcare sector or to strengthen country’s military. An appropriate example was set by the Latin American nation Costa Rica; they dismantled their military in 1949 and invested the money, which earlier was spent on the maintenance of their army, on education and healthcare. Once it is decided, what to produce, the next decision is to estimate the amount or quantity of the production. So the economy constantly struggles to choose what to produce and in what quantities. 2. How to produce? The second problem that arrives is howto harvest the given or available resources? That is, what technique is to be used for producing various goods and services? It depends majorly on the nation’s endowment of resources in deciding the optimum technique. It has to be decided whether efficient production is possible through labour-intensive or capital-intensive techniques. This decision rest on the present economic conditions...

What Are The Central Problems of The Economy? I noticed some posts regarding the central problems of the economy. So, I thought I should also explain this. Thanks to Facebook group members, who are so supportive and full of ideas. Okay, let’s start. Central means ‘core issues’ or ‘the main problem’ which each country’s economy faces, irrespective of their development level. Central problems are different from Let’s have a look at the ‘Central Problems of The Economy’. Central Problems of The Economy Every economy in the world faces the following central or main problems for which they take the most appropriate decision: • What to produce and in What quantity? Every economy has to decide which commodities or goods they should produce. For example, whether the economy should produce luxury goods, which will be expensive and only richer section of the economy will be able to purchase it; or they should focus on producing normal goods which will be affordable to a middle-income section of the economy, or they can produce inferior goods which the weaker section of the economy will be able to purchase. This depends on which section is comprising of a higher proportion of the economy. • How to produce? This problem is related to the ‘ technique of production‘. We have two techniques of production: Capital intensive technique, where more machines are used as compared to the labors. The second technique of production is Labor intensive technique, where more labors are used as compa...

Human wants are unlimited and productive resources such as land and other natural resources like raw material, capital, equipments etc. by which goods and services are produced to satisfy those wants, are scarce. The problem of scarcity of resources is felt not only by individuals, but also by the society as a whole. This gives rise to the problem of how to use scarce resources to attain maximum satisfaction. This is generally called ‘Economic Problem’. Every economic system, whether it is capitalist, socialist or mixed, has to deal with this central problem of scarcity of resources relative to wants for them. The central economic problems are further divided into three basic economic problems. These are: (i) What to produce? Every society has to decide which goods are to be produced and in what quantities. Whether more heavy machineries should be produced or more edible items should be produced; or whether more capital goods like machines, equipments, dams etc. should be produced or more consumer goods such as bread should be produced. Not only the society has to decide about what goods are to be produced, but it has also to decide in what quantities these goods would be produced. In a nutshell, a society must decide how much wheat, how many hospitals, how many schools, how many machines, how many metres of cloth, etc. have to be produced. (ii) How to produce? There are various alternative techniques of producing a commodity. For example, cotton cloth can be produced with...