Question

‘More of one good or service usually means less of others.’ In the light of given statement, discuss the relevant central problem.

Answer 1

The statement relates to the central problem of what to produce and in what quantities.

1. Resources are scarce, so an economy cannot produce unlimited quantities of every good or service.
2. Producing more of one good requires diverting resources from other goods, reducing their production. The forgone output represents an opportunity cost.
3. The economy must choose which goods to produce and decide their quantities, considering society’s priorities and available resources.
4. It should allocate resources among different goods so that they provide maximum aggregate satisfaction.

Thus, scarcity makes choices about the composition and quantity of production necessary.