The three basic economic problems are: (1) what goods to produce and in what quantities, (2) how to produce the goods, and (3) who receives the goods. These problems arise due to scarcity of resources and unlimited human wants. An economy achieves static efficiency by solving all three problems efficiently at once, while dynamic efficiency is achieved by optimally solving the problems over the long run.

1. ECONOMICS
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BASIC ECONOMIC PROBLEMS
Short revision series

2. What are basic economic problems?
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 Are also called central/fundamental economic
problems
 The economic problems arise due to two main
reasons.
 Human wants are unlimited
 But means to satisfy wants are limited
 In other words due to scarcity of resources.

3. What are the basic economic
problems?
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 What in what quantity to produce?
 How to produce?
 For whom to produce?

4. What in what quantity to produce?
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 This is a problem of resource allocation
 Decide what goods to produce
 Determine or estimate the demand of products
to be used in production decisions so that
resources are not wasted or over used

5. How to produce?
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 Deciding the means of production
 This is a production problem
 Deciding the method or technique of
production
 Either labour intensive method
 Or capital intensive method

6. For whom to produce?
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 This is a distribution problem
 A product can be targeted at poor people
 Or rich people
 Or entire community

7. Static efficiency
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 Static advantage occurs when an economy is
able to solve all 3 basic economic problems in
an efficient way at once

8. Dynamic efficiency
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 Dynamic advantage occurs when all three basic
problems are optimally solved over a long
period of time.
 If the economy achieves static efficiency over
a period of time then it is dynamically efficient