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CA Foundation · Business Economics · Nature and Scope of Business Economics

Which of the following is an example of the 'how to produce' problem of an economy?

Choosing between labour-intensive and capital-intensive technology is the 'how to produce' problem, because it concerns the combination of resources used to make goods. Choosing which goods to make is 'what', and distribution of output among people is 'for whom'.

  1. ADeciding whether to produce more wheat or more cotton
  2. BDeciding whether a garment factory should use labour-intensive or capital-intensive technologyCorrect
  3. CDeciding how national output will be shared between rich and poor
  4. DDeciding how much of national income to save for the future

Explanation

'How to produce' concerns the choice of technique, i.e. the combination of inputs such as labour and capital. Choosing between wheat and cotton is 'what to produce', and sharing output among people is 'for whom to produce'. Saving for the future relates to growth.

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