Explain the central problem for whom to produce.
Explain the problem of for whom to produce.
With the help of suitable example explain the problem of ‘for whom to produce’.
The central problem for whom to produce is the problem of allocation of resources. This relates to the distribution of national products among the various individuals. It is true that sharing of national product is directly influenced by the income of an individual. People having higher income will definitely possess higher purchasing capacities. Therefore, for proper and equal distribution of goods and services, there should be equality of income among all the people of the society. Thus, we can observe that every economy faces the problem of allocating its national resources to the production of different goods and services and of distributing the produced goods and services among the individuals within the economy.
Central problem - ‘For whom to produce’:-
For whom to produce’ refers to the problem of distribution of final goods and services or the problem of distribution of income. It has two aspects. The first aspect relates to personal distribution and the second aspect relates to functional distribution. Personal distribution refers to output/income share of individuals or households in society. Functional distribution refers to income share of different factors of production. Here, the problem is whether allocation of resources is promoting equality or not. Equality is a social virtue, and inequality may induce high saving, investment and hence high rate of growth.
This economic problem basically focuses on the distribution mix of the final goods and services produced. The distribution of the final goods and services is equivalent to the distribution of National Income (or National Product) among the factors of production such as land, labour, capital and entrepreneur.
For instance, imagine an economy producing two goods- normal rice (priced at Rs 15/kg) and graded rice (priced at Rs 100/kg). If the economy decided to cater to the needs of the lower section of the society, then it would produce more of normal rice and less of the graded rice. In such a case, the PPC curve will be as depicted in figure (ii).
On the other hand, if the economy decided to cater to the needs of the higher section of the society, then it would produce more of the graded rice and less of the normal rice. In such a case, the PPC curve will be as depicted in figure (i).