Define economics and explain the central …

Economics is a science that studies human behavior which aims at allocation of scarce resources in such a way that consumer can maximise their satisfaction, producers can maximise their profits and society can maximise its social welfare. It is about making choice in the presence of scarcity.

1. <hr />Central Problems of an Economy
2. The central problem of “what to produce” refers to which goods and services will be produced in an economy and in what quantities. An economy has to produce those goods and services where there will be maximum social utility. This problem is studies under price theory.The central problem of “how to produce” refers to what technique of production (i.e.., labour intensive or capital intensive) should be used to produce goods. An economy has to select that technique which maximizes the output at minimum cost. This problem is studies under theory of production.The central problem “for whom to produce” is related to distribution of produced goods and services(i.e.., income and wealth) among factors of production in the form of rent, wages, interest and profit.This is explained under the theory of distribution.