CBSE Class 9 · Building Blocks in Economics: The Problem of Choice

Economic Systems Class 9: What, How and For Whom to Produce

Updated 17 October 2026 · Fact-checked

Scarcity makes every economy answer three questions: what to produce, how to produce and for whom to produce. A planned economy lets a central authority decide, a market economy lets demand and supply decide, and a mixed economy shares the decisions between private enterprise and the government. Almost all economies, including India since 1991, are mixed.

Understand The Three Central Questions and Economic Systems

Three central questions.
1. What to produce? Which goods and services, and how much. NCERT's example: water-hungry sugarcane and paddy (high profit, support the sugar industry) or drought-resistant millets and pulses (save water, improve soil, more sustainable). The choice is a trade-off between short-term gains and long-term sustainability. Governments face it too: more on healthcare and education, or on defence and space?
2. How to produce? Producers choose the mix of land, labour, capital and technology.

Labour-intensive: more workers, fewer machines (agriculture, handicrafts).
Capital-intensive: more machines and technology, fewer workers (steel, automobiles).

The NCERT garment-maker example shows five deciding factors: the cost of capital, technology available, nature of the product (designer clothes need skilled labour, mass-produced garments suit machines), cost and availability of labour, and laws and regulations.
3. For whom to produce? Who will benefit, since people differ in needs, incomes and tastes. With shoes: school shoes (simple, durable, affordable), office shoes (formal, comfortable), sports shoes (light with special soles) and casual shoes or slippers (affordable for daily use). Producers study demand and what consumers can pay so that resources are not wasted.

Economic systems. An economic system is the mechanism for production, consumption and distribution, and it decides who answers the three questions.

	Planned	Market	Mixed
Who decides	central planning authority	demand and supply	private sector and government together
Ownership	mostly government	mostly individuals and private firms	both
Government role	sets targets and prices; permits and licences	like a referee: safety, law and order, public goods	regulates, provides welfare, protects consumers
Effect	little competition or incentive to innovate	competition brings better quality, lower prices, innovation	balances efficiency and welfare
Examples	former Soviet Union, North Korea, Cuba	USA, Japan, Hong Kong	India (post-1991), China (post-1978), Germany, Sweden

In reality almost all economies are mixed.

Public goods are available to all, and one person's use does not stop others from using them: parks, roads, police, street lights and basic education.

India. After Independence the state led, with licences and a dominant public sector in banking, transport and heavy industry. Facing serious difficulties, India introduced reforms in 1991 that cut excessive regulation, encouraged private enterprise and opened up trade and investment, moving the economy towards a more market-oriented system while keeping an important role for the government.

The Three Central Questions and Economic Systems: key facts

Three questions: What to produce
How to produce
For whom to produce; All caused by scarcity.
Methods of production: Labour-intensive: more workers (agriculture, handicrafts) | Capital-intensive: more machines (steel, automobiles); Choice of method.
Factors deciding method: Cost of capital
Technology
Nature of product
Labour cost and availability
Laws and regulations; Garment example.
Systems: Planned central authority
Market demand and supply
Mixed government and private together; Examples in the chapter.
Public goods: Available to all
One person's use does not stop others
Parks, roads, police, street lights, basic education; Definition and examples.

Planned	central authority
Market	demand and supply
Mixed	government and private together

How to answer The Three Central Questions and Economic Systems questions

Questions ask about the three questions, examples of each, differences between systems, the reasons for the choice of method, and the shift in India after 1991. Case questions describe a business choice and ask which question or system it illustrates.

1Name the central question in the situation: what, how or for whom.
2For "how", decide whether the method is labour- or capital-intensive and cite the deciding factor.
3For system comparisons, use rows: who decides, ownership, role of government, effect and examples.
4For India, give the pre-1991 position and the 1991 reforms in two lines each.
5End with the point that almost all economies are mixed.

The Three Central Questions and Economic Systems in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Two bakeries

Suppose bakery P bakes bread by hand with ten workers because labour is cheap and machines are costly. Bakery Q buys an automatic oven and a slicing machine and employs three workers because labour is scarce in its town.

Which is labour-intensive and which capital-intensive? What decides each choice?

Try it first, then show the solutionSolution

P uses more workers and fewer machines: labour-intensive.
Q uses more machines: capital-intensive.
Cost of capital and cost and availability of labour decide the choice.

Answer: P is labour-intensive because machines are costly relative to labour; Q is capital-intensive because labour is scarce. The relative cost and availability of labour and capital decide the "how to produce" question.

Memory hook: Cheap hands or cheap machines?

A town's park

Suppose a town allows anyone to enter a park without a ticket, and each visitor's enjoyment does not reduce another's.

Which kind of good is this and why will a market alone not provide enough of it?

Try it first, then show the solutionSolution

It is available to all and one person's use does not stop others, so it is a public good.
Private sellers cannot easily charge for such goods.
The government provides or supports such goods.

Answer: It is a public good. Since one person's use does not stop others and it is available to all, private firms may not find it profitable to supply, so the government has to provide it.

Memory hook: Open to all, used by all.

Tricks to remember The Three Central Questions and Economic Systems

Short memory aids. Say each one aloud once, then use it on a question the same day.

W-H-W
What, How, for Whom: the three questions.
Use it when: Central questions.
System by decider
Planned = Plan-maker decides; Market = Money (demand and supply) decides; Mixed = Mix of both.
Use it when: Telling systems apart.
LIC
Labour-Intensive = Craft and farm; Capital-Intensive = Cars and steel.
Use it when: Examples.

The Three Central Questions and Economic Systems: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Which system? · 1 mark · MCQBoard level

In which system do demand and supply largely decide what is produced?
(a) Planned
(b) Market
(c) Traditional
(d) Closed

Try it first, then show the solutionSolution

Market economies rely on demand and supply (1 mark).

Answer: (b) Market

Example 2: Public goods (2 marks) · 2 marks · Very short answerBoard level

What are public goods? Give two examples. (2 marks)

Try it first, then show the solutionSolution

Goods available to all, where one person's use does not stop others (1 mark).
Examples: parks, roads, police, street lights, basic education (1 mark).

Answer: Public goods are available to all, and one person's use does not stop others from using them. Parks and street lights are examples.

Example 3: Labour- and capital-intensive (3 marks) · 3 marks · Short answerHarder board level

Distinguish between labour-intensive and capital-intensive methods and name two factors that decide the choice. (3 marks)

Try it first, then show the solutionSolution

Labour-intensive: more workers and fewer machines (1 mark).
Capital-intensive: more machines and technology, fewer workers (1 mark).
Factors: cost of capital; cost and availability of labour (also technology, nature of product, laws) (1 mark).

Answer: A labour-intensive method uses more workers and fewer machines, as in agriculture or handicrafts. A capital-intensive method uses more machines and technology and fewer workers, as in steel or automobiles. The choice depends on factors such as the cost of capital and the cost and availability of labour.

Example 4: Assertion-reason: mixed economy · 1 mark · Assertion-reasonHarder board level

Assertion (A): Almost all modern economies are mixed economies.
Reason (R): Even economies with strong private enterprise involve government in regulation and public goods.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.

Try it first, then show the solutionSolution

Even market economies such as the USA have significant government involvement in regulation and public goods; R explains A (1 mark).

Answer: (a) Both A and R are true, and R is the correct explanation of A.

Example 5: India's shift (5 marks) · 5 marks · Long answerHOTS / competency

Describe how India's economic system changed after Independence and why 1991 is a turning point. (5 marks)

Try it first, then show the solutionSolution

After Independence the state led, with licences and public sector dominance in banking, transport and heavy industry (1 mark).
Serious difficulties arose (1 mark).
In 1991, reforms reduced excessive regulation (1 mark).
They encouraged private enterprise and opened trade and investment (1 mark).
India moved towards a more market-oriented system while keeping an important role for government, so it remained a mixed economy (1 mark).

Answer: After Independence India followed a state-led approach: licences were required and the public sector dominated banking, transport and heavy industry. The economy faced serious difficulties, and in 1991 reforms cut excessive regulation, encouraged private enterprise and opened up trade and investment. India moved towards a more market-oriented system, but the government kept an important role in welfare, regulation and public goods, so India remained a mixed economy rather than becoming a purely market one.

Example 6: Case: the shoe maker · 4 marks · Case-basedHOTS / competency

Read the case and answer the questions.

A shoe company studies how much parents can pay, how many students there are in the town and what colours they like. It finds that most families want simple, durable and affordable shoes. It decides to make mostly school shoes with strong stitching and to sell a few formal shoes for office-goers. Because the town has many skilled workers who charge little, it uses mostly hand stitching.

(i) Which central question is the company answering when it studies buyers? (1)
(ii) Is the method labour-intensive or capital-intensive? Why? (1)
(iii) How does the company decide "what" to produce and "for whom"? (2)

Try it first, then show the solutionSolution

(i) For whom to produce (1 mark).
(ii) Labour-intensive, because it uses many skilled workers and little machinery given low labour cost (1 mark).
(iii) What: mostly school shoes and a few formal ones; for whom: students and office-goers, based on needs and what they can pay (2 marks).

Answer: (i) For whom to produce. (ii) Labour-intensive, since labour is cheap and skilled and hand stitching is used. (iii) The company decides what to produce, mostly school shoes with some formal ones, after studying what buyers need and can afford. It produces for students, mainly, and for office-goers, which is the answer to "for whom".

Where students lose marks in The Three Central Questions and Economic Systems

The slips examiners see most often, and what to write instead.

Mistake: Skipping "how" and "for whom"
Listing only one question.
Wrong working
The central problem is what to produce.
Right working
There are three: what, how, for whom.
Do this: Write all three.
Usually costs: 1 mark.
Mistake: Misassigning examples
Learning loosely.
Wrong working
USA is a planned economy.
Right working
USA is a market economy; North Korea is planned.
Do this: Learn one example each.
Usually costs: 1 mark.
Mistake: Saying India is a market economy
Missing the mixed role.
Wrong working
India became fully market after 1991.
Right working
India moved towards a more market-oriented system but is mixed.
Do this: Add "mixed".
Usually costs: 1 mark.
Mistake: Public goods = free of cost
Wrong reading.
Wrong working
Public goods are those that cost nothing.
Right working
Available to all; one person's use does not stop others.
Do this: Use the definition.
Usually costs: 1 mark.

Exam tips

Use W-H-W to lay out your answer; each question earns separate marks.
Quote one factor from the garment example for every "how" answer.
For comparisons, use the table rows exactly: who decides, ownership, government role, effect, examples.
Write "mixed" whenever you describe India after 1991.

Practice questions on The Three Central Questions and Economic Systems

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
Which economic system is described as having a central planning authority that sets targets and prices?
(a) Market
(b) Mixed
(c) Planned
(d) Open
Hint
Central authority.
Answer
(c) Planned
Q2 · 2 marks · Very short answerBoard level
Name the three central questions every economy must answer. (2 marks)
Hint
W-H-W.
Answer
What to produce, how to produce and for whom to produce.
Q3 · 3 marks · Short answerHarder board level
Compare a planned and a market economy on three points. (3 marks)
Hint
Who decides, ownership, effect.
Answer
In a planned economy a central authority decides, ownership is mostly with the government and there is little competition or motivation to innovate. In a market economy demand and supply decide, ownership is mostly private and competition brings better quality, lower prices and innovation.
Q4 · 1 mark · Assertion-reasonHarder board level
Assertion (A): Governments also face the question of what to produce.
Reason (R): Governments must choose, for example, between spending more on healthcare and education or on defence and space.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.
Hint
Scarcity applies to governments too.
Answer
(a) Both A and R are true, and R is the correct explanation of A.
Q5 · 5 marks · Long answerHarder board level
Explain, with the example of crops, how the "what to produce" question is a trade-off between short-term gains and long-term sustainability. (5 marks)
Hint
Sugarcane/paddy versus millets/pulses.
Answer
A farmer may grow water-hungry crops such as sugarcane or paddy, which give high profit and support the sugar industry, or drought-resistant crops such as millets and pulses, which save water and improve soil. The first choice gives short-term gains but uses more water and affects soil health. The second may earn less now but is more sustainable. Because resources are limited, producing one crop means giving up the other, so the farmer must weigh immediate profit against long-term sustainability. Governments and planners face a similar balance.
Q6 · 3 marks · Short answerHOTS / competency
Suppose a factory owner finds that machines have become much cheaper while wages have risen. Predict, with reasons, how the method of production may change and what happens to jobs. (3 marks)
Hint
Cost of capital and labour.
Answer
The owner is likely to shift towards a capital-intensive method because machines are affordable and labour is costly. This reduces the number of workers needed, so jobs in that factory may fall unless other work is created. The prediction rests on two factors from the chapter: the cost of capital and the cost of labour.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Name the three central questions.Show answer
What, how and for whom to produce.
2.Give an example of a labour-intensive activity.Show answer
Agriculture or handicrafts.
3.Name two market economies from the chapter.Show answer
USA and Japan (also Hong Kong).
4.When did major economic reforms occur in India?Show answer
1991.
5.Give two examples of public goods.Show answer
Parks and street lights (also roads, police, basic education).

The Three Central Questions and Economic Systems: frequently asked questions

What are the central problems of an economy?

What to produce, how to produce and for whom to produce.

What is a mixed economy?

A system in which private enterprise and the government both play important roles.

What is the difference between labour-intensive and capital-intensive production?

Labour-intensive uses more workers and fewer machines; capital-intensive uses more machines and fewer workers.

Why did India change its economic policy in 1991?

After serious difficulties with the state-led system, India reduced excessive regulation, encouraged private enterprise and opened trade and investment.