Economic Questions
QUESTION 1
What are the THREE (3) basic economic questions that all economies must answer? Describe the differences in the way capitalism and socialism answer these questions.
Scarcity, Choices, Opportunity Costs We live in a finite world. No matter how seemingly bountiful the quantity of our natural resources may be or how carefully human try to conserve them, if we keep using them, they eventually are going to run out. Our tastes for goods and services are virtually limitless and this creates scarcity. Like the Rolling Stones song says, "You can’t always get what you want." Because we can’t have it all, we’re forced to make choices. When we making a particular decision, we forsake opportunity to choose the alternative option. Briefly, opportunity cost analysis is an important part of decision making process. All economies must decide WHAT to produce, How to produce and FOR WHOM to produce with its limited resources. These are the three basic economic questions that every society must consider when making choices. 1) What goods and services will be produced? - 2) How will they be produced? 3) For whom will they be produced?
Economic system refers to the way in which the society solves the basic economic problems of scarcity of resources. Different economic systems have addressed the three basic questions in radically different ways. [Samuelson 2005, pg.7]
Capitalism In a capitalist system, economic questions are answered by buyers and sellers at mutually agreeable terms. Capitalism refers to an economic system based on a free market, open competition and profit motive in which property is owned by either private individuals or corporation. Capitalism encourages private investment and business, compared to a government-controlled economy. In a capitalist economic system most productive assets are held by private owners, and most decisions regarding production and consumption is made by the use of ‘price mechanism’ in the market rather than
What are the THREE (3) basic economic questions that all economies must answer? Describe the differences in the way capitalism and socialism answer these questions.
Scarcity, Choices, Opportunity Costs We live in a finite world. No matter how seemingly bountiful the quantity of our natural resources may be or how carefully human try to conserve them, if we keep using them, they eventually are going to run out. Our tastes for goods and services are virtually limitless and this creates scarcity. Like the Rolling Stones song says, "You can’t always get what you want." Because we can’t have it all, we’re forced to make choices. When we making a particular decision, we forsake opportunity to choose the alternative option. Briefly, opportunity cost analysis is an important part of decision making process. All economies must decide WHAT to produce, How to produce and FOR WHOM to produce with its limited resources. These are the three basic economic questions that every society must consider when making choices. 1) What goods and services will be produced? - 2) How will they be produced? 3) For whom will they be produced?
Economic system refers to the way in which the society solves the basic economic problems of scarcity of resources. Different economic systems have addressed the three basic questions in radically different ways. [Samuelson 2005, pg.7]
Capitalism In a capitalist system, economic questions are answered by buyers and sellers at mutually agreeable terms. Capitalism refers to an economic system based on a free market, open competition and profit motive in which property is owned by either private individuals or corporation. Capitalism encourages private investment and business, compared to a government-controlled economy. In a capitalist economic system most productive assets are held by private owners, and most decisions regarding production and consumption is made by the use of ‘price mechanism’ in the market rather than