 Three fundamental questions of what to produce, how to produce it and for whom to produce....

Three fundamental questions of what to produce, how to produce it and for whom to produce

Different societies & countries also use different methods to arrive at their choices. Because of scarcity, every nation is faced with “The 3 Key Economic Questions:

• Who – consumes the goods & services produced in society?

“For whom?” is a public choice question. All economic systems must determine which goods and services will be available for public use and which for private use.

• What –goods & services should be produced?

“What to produce?” is an allocation question. All economic systems must determine how to allocate productive resources in the form of land (natural resources/raw materials), labor (work for which we earn pay) and capital (human - education & job training) (physical – buildings, equipment & tools).

• How – should goods & services be produced?

“How to produce?” is an efficiency question. All economic systems must determine how goods and services will be produced.

Further two questions away from three basic questions:

§  Efficiency of Resource-use:

A very important question that can be asked about the working of an economy is: Are the resources being used efficiently? Since resources are scarce, it is obviously desirable that they should be most efficiently used, i.e., the production and distribution of the national product should be efficient. Production is said to be efficient, if it is not possible to produce more of one good without reducing the output of any other goods in the economy. Similarly the distribution is efficient if it is not possible to make any one person/persons better off without making any other person/persons worse off through any redistribution.

§  Growth of Productive Capacity:

It is also important to know whether the productive capacity, of an economy is increasing, static or declining. The increase in productive capacity of an economy over time is called economic growth. Obviously, for under-developed economies, their basic problem is how to accelerate the pace of their economic growth.