How to produce
Also called: Choice of technique · Topic: Scarcity, Choice and Economic Systems · NCERT: Class 12, Ch 1 "Introduction (Microeconomics)"
Meaning
"How to produce" is one of the three central problems of an economy. It asks which resources and which technology to use to make each good. The main choice is between labour-intensive methods, which use more workers, and capital-intensive methods, which use more machines. The choice depends on:
- the cost of capital and of labour;
- the technology available;
- the nature of the product;
- laws and regulations.
Example
A garment maker producing designer clothes hires skilled tailors, which is a labour-intensive method. A maker of mass-produced shirts uses machines, which is a capital-intensive method. In India, farming and handicrafts are mostly labour-intensive, while steel and automobiles are capital-intensive.
Don't confuse with
- What to produce: That problem is about choosing which goods to make and how much of each. "How to produce" takes that choice as given and picks the method.