Question

“In fact, production theory is much simpler than consumption theory because the output of a production process is generally observable, whereas the “output” of consumption (utility) is not directly observable”. Explain this statement.

Answer 1

The given statement 'In fact,...observable' conveys the idea that it is comparatively convenient and simple to calculate the amount or quantity of goods that are being produced within a firm, territory, or country to determine the economic worth directly. On the other hand, estimating the amount or quantity of goods consumed by the people across a region or country is difficult and can not be observed directly. However, the latter is given more significance and determined more usually through calculating the expenditure made by the consumers depending on their choices and within their income constraints and these are the primary factors that affect the economic growth or development while the production theory lays emphasis on the maximization of profit.