Central problems of an economy what to produce how to produce for whom to produce

the word micro is derived from word "Micros" meaning small. Thus micro economics deals with small units of an economy.

 The problems what to produce how to produce and for whom to produce  arise in every economy

   What to produce:

this means that what goods and in what quantity  are to be produced by society. Guns or butter has been the popular way of describing this dilemma caused by the scarcity of resources. But this choice between war goods and goods for civilian access consumption is not the only problem of choice faced by the society. The society has to choose among thousands of consumer goods themselves and decide about allocation of resources between them. Once the society has decided which good shall be produced it must then give proper weights to each of the good it selects to produce. The fact that resources are scarce means that society cannot produce unlimited amount of even the selected goods. Therefore the society must decide how much wheat how many hospitals how many schools and how many metres of cloth are to be produced. The scarcity of resources forces us to make a choice what goods and in what quantity is to be produced. This will determine the allocation of scarce resources among them.

How to produce

this means with what method or techniques a society will decide to produce goods. Usually there are various alternative techniques of producing a commodity and the society has to choose among them. Each technique using a different combination of resources like labour and capital. Labour intensive technique will be used if the labour in the market is abundant and the capital intensive technique will be used if the capital is  abundant. Obviously the choice between Different techniques would depend on the available supplies of different factors of production and their relative prices.

For whom to produce:

 For whom to produce means who will get how much for consumption. In other words it means how the national product is to be distributed among the members of the society. productive resources and the resulting output being scarce we cannot satisfy all wants of the people. Therefore a society has to decide who should get how much from the total output of goods and services. Obviously in a free market economy who would get how much of national output depends on his money income that is the people having higher purchasing power will get more of it.