Central Problems of an Economy – topic of CS Foundation
Online CS Preparation : Production, distribution and disposition of goods and services are the basic economic activities of life. In the course of these activities, every society has to face scarcity of resources. Because of limited resources/scarcity of resources and infinite demands, society needs to determine how to produce and distribute these relatively scarce resources.
- What to produce?
Land, labour, capital, machines, tools, equipment’s and natural means are limited. Every demand of every individual in the economy cannot be satisfied, so the society has to decide what commodities are to be produced and to what extent.
There are 2 possible aspects of this central problem:
(i) What possible commodities to produce: An economy has to decide, which consumer/general goods (rice, wheat, clothes, etc.) and which of the capital goods (machinery, equipment’s, etc.) are to be produced. In the same way, economy has to make a choice between civil goods (bread, butter, etc.) and defence goods (guns, tanks, etc.).
(ii) How much to produce: After deciding the goods to be produced, economy has to decide the quantity of each commodity that is selected. It means, if involves a decision regarding the quantity to be produced, of consumer or capital goods and civil or defence goods.
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