The Economic Problem

The Economic Problem

• Arises because resources (factors of production) are limited and scarce
• whilst human needs and wants are unlimited.
• This leads to the three questions:
• What to produce?
• For whom to produce?
• How much to produce?
• The economic problem is also known as the basic economic problem, the central economic problem or the fundamental economic problem.

Allocation of resources

• Since needs and wants are unlimited whilst resources are limited
• This means that all goods that society requires cannot be produced
• so in an economy the responsible authority has to decide on what to produce, for whom to produce and how to produce.
• These are known as the three economic questions.
• There are three general approaches to solving these questions:
• Using a Free Market Economy
• Using a Command/Planned Economy
• Using a Mixed Economy

To access more topics go to the Business Studies Notes page.