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Economics: Chapter 2 section: 1
The Basic Economic Problem
The existence of scarcity creates the basic economic problem faced by every
society, rich or poor: how to make the best use of limited productive resources to
satisfy human needs and wants.
To solve this basic problem, every society must answer these three basic
questions:
1. What goods and services
will be produced?
For example, an economy
must decide whether they
should produce kitchen
appliances or weapons, build
and fix roads or buy
textbooks for schools.
2. How will goods and
services be produced?
For example, should we use
copper or plastic to make pipes? Should machines be used to make clothing or
should workers make it by hand? Should the power plant be built close to the
ocean or inland? Which fertilizer is best for growing strawberries? There are
millions of decisions that need to be made to figure out how to produce goods
and services.
3. Who will consume the goods and services?
Once the goods and services are produced, who will get to consume them? Will
people consume them on a first-come, first-served basis? Should goods be
allocated or given out by height, weight, religion, age, gender race, looks,
strength, health or wealth? How should the goods and services be distributed
among the people?
Economic Goals and Societal Values
Societies or communities answer the economic questions in different ways.
Societies look at economic goals and make decisions based on what is most
valued.
Some economic goals that are considered are:
