Four Key Economic Problems
Modern economies involve millions of complex production and
consumption activities. Despite this complexity, the basic decisions that
must be made are not very different from those that were made in ancient
and primitive economies in which people worked with few tools and
bartered with their neighbours. In all cases, scarcity, choice, and
opportunity cost play crucial roles. Whatever the economic system,
whether modern or ancient or complex or primitive, there are four key
economic problems.
- What Is Produced and How?
This question concerns the allocation of scarce resources among
alternative uses. This resource allocation determines the quantities of
various goods that are produced. For example, the choice to produce
3 bridges, 16 airplanes, and 2 million bushels of wheat means choosing a
particular allocation of resources among the industries or regions
producing the goods. What determines which goods are produced and
which ones are not?
Is there some combination of the production of goods that is “better” than
others? If so, should governments try to alter the pattern of production in
this direction?