Why is it important to understand which mechanism of solving the central problems is more desirable for the economy as a whole?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → They are likely to give different allocations of resources and different distributions of the final goods.
The central problems can be solved in more than one way. Different mechanisms are likely to give different allocations of resources and different distributions of the final goods. So it matters which mechanism is more desirable.
Option (1) They are likely to give different allocations of resources and different distributions of the final goods. — Correct. Because the results differ, the choice of mechanism matters.
Option (2) Positive and normative analysis are separate, so a mechanism can be judged without studying how it works. — Incorrect. Positive and normative issues are very closely related. One cannot be properly understood without the other.
Option (3) Every mechanism produces the same goods, so only the distribution of income needs to be compared. — Incorrect. Mechanisms give different allocations too, so the goods produced also differ.
Option (4) Positive analysis cannot tell us how a mechanism functions, so each mechanism must be judged. — Incorrect. Positive analysis is the very study of how a mechanism functions.
NCERT (2026-27): “1.4 Positive and Normative Economics It was mentioned earlier that in principle there are more than one ways of solving the central problems of an economy. These different mechanisms in general are likely to give rise to different solutions to those problems, thereby resulting in different allocations of the resources and also different distributions of the final mix of goods and services produced in the economy. Therefore, it is important to understand which of these alternative mechanisms is more desirable for the economy as a whole. In economics, we try to analyse the different mechanisms and figure out the outcomes which are likely to result under each of these mechanisms. …” “… In positive economic analysis, we study how the different mechanisms function, and in normative economics, we try to understand whether these mechanisms are desirable or not. However, this distinction between positive and normative economic analysis is not a very sharp one. The positive and the normative issues involved in the study of the central economic problems are very closely related to each other and a proper understanding of one is not possible in isolation to the other.” |