The Fundamental Economic Problem

The fundamental economic problem is related to the issue of scarcity. Because of limited resources and infinite demands, society needs to determine how to produce and distribute these relatively scarce resources. Of course, it is possible humans could limit their demands and be satisfied with the basic necessity's of life. In some tribal society's / spiritual communities you could argue there is no economic problem because the limited resources are more than adequate to meet all their wishes. However, society is mostly dominated by people wishing to consume more goods and services than are available. Because their is a shortage of resources, economics considers:

  • What to Produce
  • How to Produce
  • For Whom to Produce

From these 3 key questions there are numerous alternatives and theories about the best way to proceed. One of the fundamental questions has been the extent to which governments should intervene in the production and distribution of resources. Basically, some economists suggest the free market is the best way to proceed. However, other argue that a free market creates many problems; notably inequality of distribution. Therefore, because of this it is necessary for the government to intervene in the economic decision making process.
Perma Link | By: T Pettinger | Saturday, September 1, 2007
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