ICSE Class 9 Answered

The three basic problems of an economy are:

1. What to produce?
2. How to produce?
3. For whom to produce?

What to produce? 

1. Land, labour, capital, machines, equipments and natural means are limited. All demands, of every individual in the economy cannot be satisfied, so society has to decide the commodities which are to be produced and the quantities in which they are to be produced. Goods produced in an economy can be classified as consumer goods and producer goods. These goods may be further classified as single use goods and durable goods.
2. If we produce one commodity, it could lead to neglecting the production of another commodity. If we assume all factors of production in the economy to be fully absorbed, and still want to increase the production of one commodity, then we need to withdraw resources from the production of other commodities.
3. The economy also faces the problem of how much goods should be produced. This problem relates to the available resources like population growth and the size of market. When limited resources are available for production, the production capacity is insufficient to meet the needs of the growing population. Therefore, the level of production is determined by the availability of resources.