Answering the Three Economic Questions

Everything is scarce and an economic system tries to distribute scarce stuff (goods and services) to accommodate all those unlimited wants.In order to decide how to do this, three questions must be asked and answered.Three economic questions?

Good question about the questions. I’m glad you asked.Let me answer your question about the questions so that way you won’t have any questions about the question about the questions.Ummm… yeah.But what are the three questions?

What goods and services should be produced?How should these goods and services be produced?Who consumes these goods and services?But what are the three questions?

If there’s only so much land, labor, and capital to go around, you have to decide what’s going to be produced with it.The more you produce of some goods and services, the less you can produce of other goods and services.Those are nasty tradeoffs and opportunity costs.1. What good and services should be produced?

Guns or butter: the more military goods you produce, the fewer consumer goods you produce… and vice-versa.We want both, but how much of each? What will the balance be?1. What good and services should be produced?

Shall we increase funding for education, but decrease police and firefighting money?Maybe if it goes to my salary.Shall we invest more in solar and wind power and less in nuclear and coal?1. What good and services should be produced?

Shall we make more of this?1. What good and services should be produced?

Or more of this sweet gadget?1. What good and services should be produced?

1. What good and services should be produced?

There are all sorts of ways to produce goods and services. Why one use of LLC and not another?Why giant harvesters and not people swinging scythes?Why classrooms with lots of gadgets instead of just a blackboard?Why part-time workers instead of full-time?Why water from an aquifer and not piped-in desalinated water from the Gulf?2. How should goods and services be produced?

This can dictate what you produce.3. Who consumes goods and services?

3. Who consumes goods and services?Good market for a 60 inch HDTV

3. Who consumes goods and services?Bad market for a 60 inch HDTV