State the central problems of an economy. Explain any one of them.
In every economy, there are three economic problems, they are
i. What to produce?
ii. How to produce?
iii. For whom to produce?
‘How to produce’ means how to organise production. It is the second basic economic problem of resource allocation. It is concerned with the choice of technique production. For example, production of cloth is possible either by handlooms or by modern machines. This problem is concerned with the efficient use of resources which implies more production with low cost. Thus, one needs to decide the efficient technique of production which uses the least amount of scarce resources to provide the same amount of output.
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