Explain the problem of what to produce. 4. Explain the Problem of 'What to Produce​ 2023-01-03

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The problem of what to produce is a fundamental economic issue that arises in any economy, whether it is a small village or a large, complex modern society. This problem arises because resources are limited, but human needs and wants are unlimited. Therefore, we must make choices about how to allocate our resources in order to produce the goods and services that we value most.

One way to understand the problem of what to produce is through the concept of opportunity cost. Opportunity cost refers to the next best alternative that must be given up in order to pursue a particular course of action. For example, if a farmer decides to grow corn, they are giving up the opportunity to grow other crops or engage in other activities with their land and resources. The opportunity cost of growing corn is the value of the next best alternative that the farmer must forego.

In a market economy, the problem of what to produce is largely solved through the price system. Prices reflect the relative scarcity of different goods and services, and they provide an incentive for producers to produce the goods and services that are in high demand. For example, if the price of corn is high, it may be more profitable for a farmer to grow corn rather than another crop. Similarly, if the price of a particular good or service is low, it may not be worth the effort and resources to produce it.

However, the price system is not perfect, and there are cases where it may not accurately reflect the true value of a good or service. For example, externalities are costs or benefits that are not reflected in the price of a good or service. For example, if a factory produces pollution as a byproduct of its production process, the cost of this pollution is not reflected in the price of the factory's products. This can lead to a situation where the factory is producing too much of the good, from a societal perspective.

In addition to externalities, there are other factors that can influence the problem of what to produce. For example, governments may use various tools, such as subsidies and taxes, to influence the production of certain goods and services. Governments may also have specific goals or objectives, such as promoting economic growth or protecting the environment, that may influence their production decisions.

In conclusion, the problem of what to produce is a complex and ongoing issue that arises in any economy. It involves making choices about how to allocate limited resources in order to produce the goods and services that we value most. The price system is one way to solve this problem, but it is not perfect and there are other factors that can influence production decisions.

Explain what is meant by the problem of what to produce, how to produce, and for whom to produce.

explain the problem of what to produce

ADVERTISEMENTS: The Central problems of what and how much to produce; how to produce and for whom to produce are determined by the free price mechanism. Animated depiction of types of products There are different needs of every human in the society, considering that it is decided which goods and services are to be produced and in what quantity are they required in the society. The choice of technique depends on the prices of the factors of production. Illustration: Let us assume that resources are available worth 5 crore. For whom to produce? The decisions taken by firms and government have implications. Explanation: Every economy faces the problem of what to produce. For example, the production of textiles can be done either by handloom or machine-based.

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Explain the problem of 'how to produce'

explain the problem of what to produce

Briefly put i Microeconomics is the study of individual economic units like a consumer, a firm producer whereas macroeconomics is the study of economy as a whole and its aggregates like national income, total employment, general price level. Accordingly, both the guns and bread are to be produced. It would have to also make decision on what to produce, how to produce it and for whom to produce. Hence, to maintain stable equilibrium price it becomes necessary to make demand and supply equal. Because resources are scarce, we cannot produce everything in whatever quantity we wish to. As we move down along the PPC, to produce each additional unit of Good X, more and more units of Good Y needs to be sacrificed.

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Basic Economic problem of the society: what to produce, how to produce, for whom to produce, efficient use of resources, determining factors.

explain the problem of what to produce

Every economy faces the problem of what to produce. An animated depiction of For Whom to Produce with example This involves deciding who is the end consumer of the goods or services that are produced. But if the level of income is low, the purchasing power will equally be low and this will lower the rate of production of these goods and services. As we know central problem deals with the production and allocation problems related to the resources so we can infer that it solves the central problem of an economy by the production of two goods using sufficient resources and technology. The fund is not just there and where such a fund is present, the technology is absent.

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What to Produce, How to Produce and For Whom to Produce

explain the problem of what to produce

Factors Which Determine For Whom To Produce The following factors must be considered when determining who to produce: Satisfaction of Wants: All the goods and services produced either by individuals, firms or government must satisfy the needs or wants of the society. Hence it decides what to produce with the sole aim of satisfying the wants of the citizens of society or state. Production has to be done in a way that maximum satisfaction is achieved by society by looking into what is more important than another. Lesson Summary Aids: See reference materials below content. As the resources are scarce, the production of one means sacrificing another. Basic needs which are necessities such as health, education, electricity and water supply need not be denied anybody and so the state must make sure they are available to all at least. For example, the construction of a hospital can be done by giving up a highway.


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Explain the problem of 'what to produce' with the help of an example. Does it arise in every economy? Explain.

explain the problem of what to produce

Assuming technology to be constant, we can utilize resources entirely for the production of say guns and produce 500 guns, or utilize these resources entirely for the production of say bread and produce 500 tons of bread. But a basic rule in economics is that, that process will be used if it can produce a given quantity of output at the lowest possible cost. The quantity in which a commodity is to be produced is set at that level where demand equals supply. Production Function: This involves any analysis which shows the possible quantity of goods by using each of the given alternative combination of resources that produces the largest quantity of output at the lowest unit of cost of production. Availability of Resources: Availability of resources also play a vital role in such a decision.

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Explain the problem of what to produce . from Economics Introduction Class 12 Haryana Board

explain the problem of what to produce

But in the strict economic sense, price remains a cardinal factor in the choice of the commodity to produce. Rationality therefore ensures that in production of commodities deferent processes of production are evaluated and the best will be selected and used in production processes gives a certain level of output. Efficiency Of Resources Use In production, efficiency of resources used refers to the optimum use or combination of factors of production to achieve higher and better output at a reasonable cost. Goods can be produced in-house or made in a foreign land. For example, in a capitalist economy, the price system determines the type and quantity of goods and services that are to be produced as profit is the major determinant of what to produce whereas in a socialist economy, the state controls and direct the allocation of resources. It should be realised that efficiency in resource use is not limited to producers alone. These can be studied by knowing: A pictorial representation of The Economic Problem What to produce? Economic problem arises from scarcity of resource.

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Explain the problem ‘what to produce’ with the help of an example. Does it arise in every economy?

explain the problem of what to produce

The economic problem of 'For whom to Produce' basically focuses on the distribution mix of the final goods and services produced. A public park or a school can be built on the same land, one has to decide what needs to be built by studying which is a more important need of the area. One of those things you do in the study is to identify prospective consumers of the commodity to be produced. The allocation of resource e. The assumption of rationality entails that there exist consistency in decisions and actions. In such a case, the process is said to be superior to other processes.

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What to Produce, How to Produce and For Whom to Produce

explain the problem of what to produce

Production Possibility Curve PPC will be concave to the origin because of the increasing opportunity cost. Relative Cost Of Factors Of Production: The cheaper the relative cost of factors of production, such as labour, capita, land, etc, the more the production of goods and services to satisfy human wants but when the factors of production is high, very little production will be attained. The final product is an output, which bears utility or the ability to meet the expectations of consumer wants. For Whom To Produce Before engaging in production, investors are expected to have carried out a feasibility study about the nature of the business. Determining what to produce, therefore, heavily depends on the multiple demands of people and the readiness of producers to satisfy these demand. Our Economics lessons Continues! Because firms are constrained by unavailability of resources which include fund, it must make decisions on what to produce. Production possibility curve is a graphical representation of the maximal mix of outputs that an economy can achieve using its existing resources to full extent and in the most efficient way.

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Explain the problem of what to produce with the help of ppc

explain the problem of what to produce

Production: Production entails the amalgamation of resources known as inputs in a bid to create a finished commodity for market consumption. The purchasing power of the owner of capital is determined in the same way. If quality produced is more or less, then there will be dis equilibrium in the market and price will fluctuate. Public goods tend to be available to all while private goods have marker restrictions. For example, the production of graded rice is for people with higher paying capacity and the production of non-graded rice is for lower-income people. Efficiency is essentially a technical relationship in production.

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