Introduction Test - 6

For whom to produce refers to a problem in which decision regarding which category of people are going to consume a good ie., economically poor or rich. Goods and services are produced for those who can purchase them or have the capacity to buy them. 

Production possibility curve only depicts the maximum which a country can produce. Thus massive unemployment only means that the resources are not utilised efficiently(fully). Hence there is no change or shift in the PPC. 

The fundamental economic problem is related to the issue of scarcity. Because of limited resources and infinite demands, society needs to determine how to produce and distribute these relatively scarce resources. 

Macroeconomics is a branch of the economics field that studies how the aggregate economy behaves. In macroeconomics, a variety of economy-wide phenomena is thoroughly examined such as, inflation, price levels, rate of growth, national income, gross domestic product and changes in unemployment.
 

When there is advancement of technology or/and increase in availability of resources in respect to both the goods, then PPF will shift to the right. For example, if there is increase in resources for production of butter and guns, we can produce more of both the goods. In such case, existing PPF (PP) will shift to the right.

Labor intensive refers to a process or industry that requires a large amount of labor to produce its goods or services. The degree of labor intensity is typically measured in proportion to the amount of capital required to produce the goods or services; the higher the proportion of labor costs required, the more labor intensive the business.
 

Capital intensive refers to a business process or an industry that requires large amounts of money and other financial resources to produce a good or service. Once the upfront investments are made, there may be economies of scale with regards to ongoing expenses and sales growth, but the initial hurdle to get into the business tends to keep the list of competitors small, creating high barriers to entry.
 

One goal of microeconomics is to analyze the market mechanisms that establish relative prices among goods and services and allocate limited resources among alternative uses. Microeconomics shows conditions under which free markets lead to desirable allocations. It also analyzes market failure, where markets fail to produce efficient results.

The economic problem – sometimes called the basic or central economic problem, asserts that an economy's finite resources are insufficient to satisfy all human wants and needs. It assumes that human wants are unlimited, but the means to satisfy human wants are scarce.

How to produce, What to produce and for whom to produce these three questions are considered as basis of central economic problem. central economic problem – asserts that an economy's finite resources are insufficient to satisfy all human wants and needs. It assumes that human wants are unlimited, but the means to satisfy human wants are scarce.