An economy’s problems are frequently stated in the following three ways:
What to produce?
This issue is about making decisions about which commodities to produce and in what quantities they should be produced.
There is a scarcity of labor, land, machinery, capital, equipment, tools, and natural resources. ,
It is impossible to meet all of society’s demands. As a result, determining what goods and services must be produced and in what quantities is critical.
A government that retains the ability to allocate resources in diverse sectors of production can solve the problem of what to produce and in what amounts.
For example, if a farmer only has one acre of agricultural land, he must pick between two commodities: rice or wheat.
How to produce?
This issue is about deciding on a production technique. It occurs when more than one method of producing products and services is available.
There are primarily two production techniques. These are the following:
Labor intensive technique: A technique that requires a lot of effort rather than money.
Capital intensive technique:A technique that requires a lot of money and less utilization of effort.
A producer will employ whatever technology is offered at the lowest cost.
3. For whom to produce?
One of the most serious economic issues is determining which goods should be produced for which segments of society.
Essential products and services are in demand from all segments of society, but luxury goods and services are only desired by a few minorities.
This distribution or proportion is closely related to the economy’s purchasing power.
Final Answer:
The central problems of an economy are as follows:
What to produce?
This issue is about making decisions about which commodities to produce and in what quantities they should be produced.
How to produce?
This issue is about deciding on a production technique. It occurs when more than one method of producing products and services is available.
For whom to produce?
One of the most serious economic issues is determining which goods should be produced for which segments of society.