A government uses progressive income taxation to bring about a distribution of income that society considers ‘fair’. Which central problem of an economy does this mainly deal with?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → For whom to produce
Progressive taxes take more from higher incomes. This changes who gets how much of what the economy produces. So it deals with the problem of for whom to produce.
Option (1) What to produce — Incorrect. What to produce is about which goods and how much of each.
Option (2) How to produce — Incorrect. How to produce is about the method, such as more labour or more machines.
Option (3) For whom to produce — Correct. Taxes that change the distribution of income decide who gets more and who gets less.
Option (4) Which technology to adopt — Incorrect. Choosing a technology is part of how to produce.
This question uses Introduction to Microeconomics (the central problems) and Government Budget and the Economy (the redistribution function) together.
NCERT (2026-27): “For whom are these goods produced? Who gets how much of the goods that are produced in the economy? How should the produce of the economy be distributed among the individuals in the economy? Who gets more and who gets less? …” “Introductory Macroeconomics, Chapter 5 Government Budget and the Economy, Redistribution Function of Government Budget … The government sector affects the personal disposable income of households by making transfers and collecting taxes. It is through this that the government can change the distribution of income and bring about a distribution that is considered ‘fair’ by society. This is the redistribution function.” |