The three basic questions of economics that any economy needs to answer are how to produce, what to produce and for whom to produce. These questions are essential because the resources are scarce; every individual has to struggle with scarcity, families have to struggle with it, we as a society have to struggle with it, countries have to struggle with scarcity. You can see it everywhere if you watch the news. Everyone is struggling with some scarce resource, to say the least. All around the world – people, society, governments are making choices; we all have our own way of making this choice and that very cause gives rise to the ‘The Three Questions of Economics’.

What To Produce?   

The resources available with us are scarce and therefore there must be the optimum utilization of the resource. The choice will have to be made whether to produce apple or banana, wheat or rice, milk or cheese; capital goods or consumer goods. In a market economy, what to produce is determined by the demand or by the preference of business and consumers, but sometimes even the government determines what goods to produce. In a socialistic economy, almost always what to produce is determined by the government; it’s not wrong to say it’s a command and control economy as the government decides which firm will produce what. A good example of such an economy is the old Russia, China, North Korea, etc. The best way to decide what to produce is with the help of production possibility curve.

How To Produce?

This question is again about the allocation of the scarce resource; a proper method of production will have to be chosen. The decision will have to be made depending on which resource is more viable. Whether to use a labor-intensive method or capital intensive method will have to be decided. In a market economy, there is much competition and every firm wants to maximize its profit, therefore, the cheapest means of production will be given preference. The method of production will be commanded by the government in a socialistic economy.

For Whom To Produce?

The final decision that an economy needs to make after they have decided what to produce and how to produce is who the beneficiary of the product will be. Will it be the rich or the poor? In a perfect competition, the person who has the money for the product usually gets to buy the product. In the US, UK, and most other countries it goes that way.

Some World Economic Questions And Theories

The three major questions that we have decided to share with you is ‘Why was the great depression so long and so deep?’ and ‘What is the reason behind the industrialization occurring in that period?’

The answer to the first question about depression has been sought by many people over the last many years and the answer they found is that the great depression happened and lasted so long was because of stock market crash of 1929, bank failures, reduction in purchasing by the consumers, the economic policy of America with Europe, and drought conditions.

The reason behind the first industrial revolution was the increase in the number of people wanting to be inventors due to several reasons – some civic whereas others monetary. There were new inventive ways found to extract cheap energy and this fueled the industrial revolution much faster. A collection of great inventors in that era also contributed greatly to the revolution.

Conclusion :

All the major economic theories and the problems that economics tries to solve is related to scarcity. If the resource was abundant and was distributed equally, there would be no economic problem; in fact, there will be no problem at all. The three questions of economics are based on the theory of scarcity and resource management. Therefore, the optimum utilization of the resource is essential to solve any economic problem with Economics Help by EssayCorp.