The correct option is 1 and 3 only.
Explanation
In macroeconomics, analyzing the millions of distinct goods and services produced in an economy individually is impractical. To simplify this, economists utilize the concept of a "Representative Good," a theoretical construct where the economy is treated as if it produces a single commodity.
Statement-wise Analysis:
- Statement 1 is Correct: The primary purpose of the representative good is aggregation. It allows economists to study the economy as a whole without tracking the supply and demand dynamics of every specific real-world commodity.
- Statement 2 is Incorrect: The production level of the representative good corresponds to the total (aggregate) production of all goods and services in the economy, not the average production level. It serves as a proxy for the Gross Domestic Product (GDP) or aggregate output.
- Statement 3 is Correct: The price of this representative good is assumed to correspond to the general price level of the economy. Changes in this price indicate inflation or deflation.
Key Takeaway:
The "Representative Good" is a macroeconomic simplification where the quantity represents Aggregate Output and the price represents the General Price Level.