Meaning in Simple Words

Every economy has limited resources. So, it cannot produce everything people want.

It must decide which goods and services to produce and how much to produce.

This is called the problem of what to produce.

Real-Life Example

Suppose the government has limited steel and workers.

It must decide whether to use these resources to build houses or military tanks.

It must choose what is more important and how many units to produce.

Exam Answer

The problem of what to produce means deciding which goods and services an economy should produce and in what quantities. For example, the government must decide whether to use limited resources to build houses or military tanks.