What is central problem of an …

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