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Economy and its central problems

Prof, A.J. Brown defines economy as an approach by means of which people obtain their living. Additionally, in layman’s language, the phrase economy can be defined as a platform which facilitates individuals with various ways to work and bring in income and livelihood.

Central Problems of an Economy

Every economy whether it is simple or complex, developed or undeveloped, socialist, capitalist or mixed or big has to cope with three main central problems i.e. What to produce? How to produce? For whom to produce?

The central problems occur mainly because of the reality that human wants are unlimited but the resources available to satisfy these wants are limited, therefore it becomes necessary for each and every economy to make choice among several available resources.

Fig. Central problems of an economy

• What to produce: It implies that each and every economy has to decide which goods are to be produced and in what quantity.

 

• How to produce: Involves a choice between means of production i.e. whether to go for labor intensive techniques of production or capital intensive techniques of production depending on the availability of capital and workers.

 

• For whom to produce: It relates to the decision that the produced goods would be distributed among which all consumers and in what amount.