Q26. Explain the problem ' What to Produce ' with the help of an example.
Ans:- The first central problem of an economy is what goods and services to be produced and in what quantities. Since resources are scarce, the society has to decide about the goods and services to be produced, eg , wheat, cloth, road, buildings etc. Once the nature of the goods to be produced is decided, then their quantities are to be decided, eg , how many kilos of wheat, how many million meters of cloth, how many kilometers of road, how many buildings etc. Since the resources of the economy are scarce, the problem of the nature of goods and their quantities has to be decided on the basis of preferences of the society.
This problem can be explained with the help of the production possibility curve given below.
It will, therefore, have to choose among the combinations B, or D which give the highest level of satisfaction. If the society decides to have more of capital goods, it will choose combination B, and if it wants more consumer goods, it will choose combination D.
Q. Explain the central problems of 'choice of technique' ( ' how to produce ' ).
Ans:- One of the basic problem of an economy is to decide about the techniques or methods to be used in order to produce the required goods. This problem is primarily dependent upon the availability of resources within the economy. If land is available in abundance, it may have extensive cultivation. If land is scarce, intensive methods of cultivation may be used. If labour is in abundance, it may use labour-intensive techniques; while in the case of labour shortage, capital-intensive techniques may be used. The technique to be used also depends upon the type and quantity of goods to be produced. For producing capital goods and large outputs, complicated and expensive machines and techniques are required. On the other hand, simple consumer goods and small outputs require small and less expensive machines and comparatively simple techniques. Further, it has to be decided what goods and services are to be produced in the public sector and what goods and services in the private sector. But in choosing between different methods of production, those methods should be adopted which bring about an efficient allocation of resources and increases the overall productivity in the economy.
Q. Explain the central problem of 'distribution of income' ( for whom to produce ).
Ans:- One of the basic problem of an economy is to decide about the allocation of goods or distribution of income among the members of the society. How should the consumer goods be distributed? How should the capital goods be distributed? The allocation of consumer goods among the households takes place on the basis of exchange. Whosoever possesses the means to buy the goods may have it. A rich person may have a larger share of the goods he requires, and a poor person may have lesser quantities of the goods he wants. The allocation of capital goods takes place according to the needs of individual industries, whether they belongs to the public sector or the private sector. Since the supplies of certain consumer and capital goods are short in relation to their demand, the government also intervenes to allocate them equitably through price controls, rationing or quotas.
Q. Define goods with suitable example.
Ans:- In economics, goods refers to physical, tangible products that satisfy human wants and provide utility. Goods are grnerally classified into two parts:-
a. Free goods or Non-economic goods.
b. Economic goods.
Example:- notebooks, pen, paper etc.
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Introduction to Microeconomics Part 1
Introduction to Microeconomics Part 2
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