CENTRAL PROBLEMS OF AN ECONOMY

Economic System

Definition: Economic System refers to an arrangement by which central problems of an economy are solved.

1. What to Produce - It involves deciding the final combination of goods and services to be produced i.e. it involves a selection of goods and services and the quantity of each, that the economy should produce.
2. How to Produce - It involves deciding the technique of production i.e. whether selected goods are to be produced with more labor and less capital or with more capital and less labor.
3. For whom to Produce - It involves deciding the distribution of output among people i.e. it involves the selection of the category of people who will ultimately consume the goods.