- Every society must solve three fundamental economic problems.
- These are: what, how, and for whom.
What commodities are to be produced and in what quantity?
- A society must decide what goods and services to make.
- It also decides when they will be produced.
- Example: Will we produce pizzas or shirts today?
- Example: Will we produce many consumption goods (pizzas)?
- Or fewer consumption goods and more capital goods (pizza machines)?
How are the goods to be produced?
- A society must decide who will do the production.
- It determines what resources will be used.
- It also decides what production techniques will be used.
- Example: Who does the farming and who teaches?
- Example: Will factories be run by people or robots?
For whom are the goods to be produced?
- This asks who gets to eat the fruit of economic activity.
- It questions if income and wealth distribution is fair.
- Example: How is the national product divided among households?
- Example: Do many people stay poor while a few are rich?