Central problem of an economy – Economic There are four basic economic questions arises by firms or Government in each and every economy.

1. What to produce
2. How to produce
3. For whom to produce
4. How much to produce  

1. What to produce- In an economy, Firms or Government will always face a question known as what to produce ? Either goods or services. Say an economy decided to produce goods. The problem of what to produce solved.
2. How to produce- After solving the problem of what to produce, the economy will face its second problem, How to produce the  goods. Either hiring more labour less capital or vice versa. Once an economy decided that production can be done by hiring more labour and less capital. The second problem how to produce solved.
3. For whom to produce- The third basic economic question arises in an economy is for whom to produce the goods or services? In the above explanation we have decided to produce goods. Say for example the economy is targeting to produce shoes but who will be the target consumers ? There are many varieties of shoes for different ages such as Sports shoes or formal shoes. Say an economy is targeting to produce sports shoes then the problem of for whom to produce has been solved.
4. How much to produce- This problem is based on demand and supply of goods or services. 

Production possibility schedule- It is the tabular representation of two different goods or services which are being produced at maximum level within an economy with given scarce resources (LLCE).

Schedule 1

Production possibility schedule- Production possibility curve– It is the curve, which shows two different goods or services can be produced at maximum level by using the scarce resources (LLCE) land, labour, capital & resources.   

                                                                                             Diagram 1

In the above diagram resources has been used to produce good Y and good X. Point a,b,c are the different combinations where production of both the goods are possible in an efficient way, However point e achieved inefficiency as few resources has been utilized to produce both the goods however point d is unattainable as resources are not available to produce at point d.

Question- In the above diagram, Is there any possibility that production will be possible at point d?

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Shift in PPC –There are two causes behind shift in PPC. PPC may shift outward or right and inward or left. When there will be increase in resources (LLCE) PPC will shift to the right or outward shift whereas when there will be decrease in resources (LLCE) PPC will shift to the left or inward shift.

LLCE= land, Labour, Capital, Enterprise

                                                                                          Diagram 2

In the above diagram, AA’ is initial PPC, due to increase in all or any one of resources (LLCE), PPC shifted outward from AA’ to BB’ and due to decrease in the resources (LLCE) PPC shifted inward from AA’ to CC’.

Movement along PPC- There might be movement on same PPC from one point to another, In case if the producer or an economy has seen an increase in the demand for Good X, hence resources can be moved from one point to other point to meet the demand by producing more unit of good X and Vice Versa.

In the above diagram we can see, Initial production of good X is 10 units and Good Y is 10 units, When an economy has realized there is an increase in the demand of good X, the resources has been moved from point a to c to produce more of good X and Vice versa for good Y.

Rotation in PPC-PPC rotates along X axis because of improvement in technology or different techniques in the production of good X.

                                                                                                Diagram 3

 In the above diagram PPC rotates from AA’ to AB due to improvement in technology .

PPC rotates along Y axis because of improvement in technology or different techniques in the production of good Y.

                                                                                                   Diagram 4

In the above diagram PPC rotates from AA to AB due to improvement in technology.

Shape of PPC or Why PPC concave –  A PPC can be concave to the origin because of increasing opportunity cost. Increasing opportunity cost has been calculated in schedule 1. A concave PPC has been drawn in diagram 5.

                                                                                                          Diagram 5

Shape of PPC or why PPC straight line- A PPC can be straight because of constant opportunity cost. constant opportunity cost has been calculated in schedule 2. A straight PPC has been drawn in diagram 6.

                                                                                                              Diagram 6

Positive and Normative economics-

Positive economics means factual statement or any statement which is backed by evidence. Few positive statements are as follows a fall in the supply of demerits good such as diesel will lead to increase in the price of diesel. An increase in the arrival of tourist in a particular city say Singapore leads to increase in employment opportunity in Singapore.

Normative statement means value judgement, or an opinion or thought. The first positive statement  fall in the supply of demerits good such as diesel will lead to increase in the price of diesel this forces the demand to go down and its should be good for environment and this statement is normative.  The second example An increase in the arrival of tourist in a particular city say Singapore leads to increase in employment opportunity in Singapore and the government of Singapore should maintain its infrastructure as number of population may increase in the city, this statement is normative

Economic System –  There are three types of economic system in world economy.

1. Market economic system- Private firms operates and controls the economy, there is zero government intervention however the same is not the case in real life scenario, market economic system such as USA, Singapore, UK etc are not fully controlled by private firms, there are Government intervention
2. Planned economic system- Government controls the production & distribution and allocation of resources. There is no role of private firms in planned economic system such as North korea and Cuba. These two countries are perfect planned economic system however export and imports are involved. 
3. Mixed economic system- Those economic system which combined both planned and market economic system features such as India, Pakistan, Nepal etc  Here both private firms and Government produces goods and services and allocates resources too. Whenever private firms increases the prices, the Government intervene ad control the price.