Question

Why is it important to know how much output is being produced? Who uses such information?

Answer 1

It is important to know how much output to produce to avoid the problem of excess supply and inventory accumulation in the economy. For example, if in an economy there is demand for 200 packets of milk. If the milk producer doesn't have this knowledge that 200 packets are required to be produced , he might produce 300 packets. These extra 100 packets will remain unsold because of lack of demand for milk in the economy and inventory will be accumulated, leading to loss incurred by the producer.

Similarly less of production than actual demand can lead to excess demand in the economy and ultimately lead to inflation. If suppose instead of 200 packets of milk only 100 packets are produced. Then there will be deficiencies in supply of 100 milk packets and price of milk will rise as thus the consumers would be worsened of.

Thus how much output should be produced is highly important to be known and this information is used by the producer of various goods and services in the economy.