Correct Option
The correct option is 2 only
Explanation
Every economy faces the problem of scarcity of resources relative to unlimited human wants. This necessitates making choices regarding the efficient use of available resources. These choices constitute the central problems of an economy: What to produce, How to produce, and For whom to produce.
Statement-wise Analysis
- Statement 1 is Incorrect: The problem of "For whom to produce" is essentially a problem of distribution. Since an economy cannot produce enough for everyone, it must decide who gets how much of the goods and services produced. This is determined by the distribution of income among the factors of production (land, labor, capital, and enterprise).
- Statement 2 is Correct: The problem of "How to produce" is a problem of choice of technique, not distribution of income. It involves deciding the combination of factors of production to be used-specifically, whether to use labor-intensive techniques (more labor, less capital) or capital-intensive techniques (more capital, less labor) to maximize efficiency.
- Statement 3 is Incorrect: The problem of "What to produce" is directly related to the allocation of scarce resources. The economy must decide which goods and services to produce (e.g., consumer goods vs. capital goods) and in what quantities, based on the limited resources available.
Key Takeaway
The three central problems of an economy are:
- What to produce: Allocation of resources.
- How to produce: Choice of production technique (efficiency).
- For whom to produce: Distribution of national product (income distribution).