The central problems of the economy

(a) What to produce : The first problem which every economy has to face, is that which commodity they should produce and in what quantity it should be produced because available resources are limited and have alternative uses. An economy can produce a number of goods by the available limited resources.

 (b) How to produce : This problem is related with problem of choice of technique. After deciding the commodity and quantity of production. For eg. in re-construction sector we have to choose among labour intensive technique (technique where ratio of labour is more than capital) and capital intensive technique (technique where ratio of capital is more than labour).

(c) For whom to produce: This problem is related with distribution of income generated or output produced. In this problem the economy has to decide that who should consume how much. So in this problem we studies how output produced or income generated is distributed among different means of production or different individuals.