Explain the problem of 'what to produce' with the help of an example.

1.	Explain the problem of 'what to produce' with the help of an example. Does it arise in every economy? Explain.
Answer» Every economy faces the problem of what to produce. Because resources are scarce, we cannot produce everything in whatever quantity we wish to. We are bound to face the problems of what to produce and how much. Illustration: Let us assume that resources are available worth 5 crore. 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. We need guns for the defence and bread for the masses. Accordingly, both the guns and bread are to be produced. How much of each is to be produced depends on the wisdom of the planners in a planned economy, also upon the market forces of demand and supply in a free economy.

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

Answer»

Every economy faces the problem of what to produce. Because resources are scarce, we cannot produce everything in whatever quantity we wish to. We are bound to face the problems of what to produce and how much.

Illustration: Let us assume that resources are available worth 5 crore. 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. We need guns for the defence and bread for the masses. Accordingly, both the guns and bread are to be produced. How much of each is to be produced depends on the wisdom of the planners in a planned economy, also upon the market forces of demand and supply in a free economy.

Discussion

No Comment Found

Related InterviewSolutions

A lot of people die and many factories are washed away because of severe cyclone in a country. How will it affect the country,s PPF?
Explain the problem of 'what to produce' with the help of an example. Does it arise in every economy? Explain.
What will be the impact of recently launched 'Clean India Mission' (Swachh Bharat Mission) on the Production possibility Curve of the economy and why ?
Write ‘true’ or ‘false’ with a reason:If a country is operating inside the PPC, it is saving its resources for future growth.
Write your comment of the statement in a sentence or two: Economic activity would not exist if resources were not scarce.
Complete the following sentence:Mixed economy is the one in which ________________.
Write ‘true’ or ‘false’ with a reason:When output of Good-1 increases from 100 units to 110 units and output of Good-2 decreases from 400 units to 350 units, marginal opportunity cost = 50 units.
Write your comment of the statement in a sentence or two: A point below PPC points to under utilisation of resources.
Write ‘true’ or ‘false’ with a reason:With an efficient utilisation of resources, an economy can shift to point beyond the PPC.
Tax rates on higher income group have been increased. Which economic value it reflects? Explain.