There are 3 basic questions of economics. What to produce? how to produce? and for whom to produce? These economic questions arise because of the concept of scarcity. There are three basic economic questions that must solve by every society facing the problem of scarcity.
What to produce?
How to produce?
For whom to produce?
These basic questions of economics have to be solved in order to distribute the scarce resources of the society to satisfy the unlimited needs of the people.
Basic Questions of Economics: What to produce?
Let us consider the first fundamental economic question, which is what to produce? This problem arises because the limited resources of society cannot produce all the goods and services that society needs.
When one product produces more, the quantity produced by another product has to be reduced. Because of this have to make a choice. So it is necessary to decide which products and services should be allocated for the production of limited resources.
The goods produced by an economy are mainly divided into two parts.
- consumer goods
- capital goods
Products are also classified as agricultural and industrial. But even an agricultural commodity can be a consumer commodity or a capital commodity.
Products can also be classified as essential and luxury goods. Luxury goods can be consumer goods or capital goods, so the goods produced are mainly classified as consumer and capital goods.
Accordingly, the question of what to produce can be interpreted in another way. That is, what quantities of consumer goods and capital goods can be produced by the limited resources in the economy.
Some countries use most of their limited resources to produce defense goods, while others use more resources to produce consumer goods.
How to produce?
The next important economic question that arises after deciding which goods and services to produce is how to produce those goods and services.
There are several alternative methods that can be used to manufacture a product. So the appropriate techniques are selected to make the most efficient use of the available resources.
Basic Questions of Economics: For whom to produce?
Finally, how to define the basic economic question of whom to produce. This means determining who in society consumes the goods and services produced.
Goods are often provided for those who can afford to pay. If the distribution of goods is determined on the basis of the ability to pay, the problem will be solved on the basis of the personal income distribution. In this case, those with more economic power will own more of the product. This economic question is important to society because the quantity of goods that can be produced is limited.