U1 AOS 1 - Lesson 4 - Basic Economic Questions Flashcards
The three basic economic questions
- What and how much to produce
- How to produce
- For whom to produce
True/False: one of the three basic economic questions is what to produce.
False: the question is what and how much to produce.
How is ‘what and how much to produce?’ answered?
Mostly by the market and the price mechanism - producers will produce the goods that are the most profitable, and they will produce at the equilibrium price (which maximises profit)
However, the government also intervenes to protect against market failures
How is ‘how to produce?’ answered?
Producers determine the most cost effective and efficient way to produce - however, government also influences this through environmental and workplace regulation
How is ‘for whom to produce?’ answered?
Market decides as those with the most money have greatest access
