Answering The Three Economic Questions

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The three economic questions and how to answer them.

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Answering The Three Economic Questions

  1. 1. Answering the Three Economic Questions<br />
  2. 2. Everything is scarce and an economic system tries to distribute scarce stuff (goods and services) to accommodate all those unlimited wants.<br />In order to decide how to do this, three questions must be asked and answered.<br />Three economic questions?<br />
  3. 3. Good question about the questions. I’m glad you asked.<br />Let me answer your question about the questions so that way you won’t have any questions about the question about the questions.<br />Ummm… yeah.<br />But what are the three questions?<br />
  4. 4. What goods and services should be produced?<br />How should these goods and services be produced?<br />Who consumes these goods and services?<br />But what are the three questions?<br />
  5. 5. 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.<br />The more you produce of some goods and services, the less you can produce of other goods and services.<br />Those are nasty tradeoffs and opportunity costs.<br />1. What good and services should be produced?<br />
  6. 6. Guns or butter: the more military goods you produce, the fewer consumer goods you produce… and vice-versa.<br />We want both, but how much of each? What will the balance be?<br />1. What good and services should be produced?<br />
  7. 7. Shall we increase funding for education, but decrease police and firefighting money?<br />Maybe if it goes to my salary.<br />Shall we invest more in solar and wind power and less in nuclear and coal?<br />1. What good and services should be produced?<br />
  8. 8. Shall we make more of this?<br />1. What good and services should be produced?<br />
  9. 9. Or more of this sweet gadget?<br />1. What good and services should be produced?<br />
  10. 10. 1. What good and services should be produced?<br />
  11. 11. There are all sorts of ways to produce goods and services. Why one use of LLC and not another?<br />Why giant harvesters and not people swinging scythes?<br />Why classrooms with lots of gadgets instead of just a blackboard?<br />Why part-time workers instead of full-time?<br />Why water from an aquifer and not piped-in desalinated water from the Gulf?<br />2. How should goods and services be produced?<br />
  12. 12. This can dictate what you produce.<br />3. Who consumes goods and services?<br />
  13. 13. 3. Who consumes goods and services?<br />Good market for a 60 inch HDTV<br />
  14. 14. 3. Who consumes goods and services?<br />Bad market for a 60 inch HDTV<br />

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