Question

Each country must answer three economic questions.Define and describe each economic question

Answer 1

Answer:

The three economic questions that every society must answer are as follows: "What to produce?" "How to produce?" and "For whom to produce?"

"What to produce": The quantity in which a commodity is to be produced is set at that level where demand equals supply. If quality produced is more or less, then there will be dis equilibrium in the market and price will fluctuate. Hence, to maintain stable equilibrium price it becomes necessary to make demand and supply equal.

"How to Produce": There are two types of techniques. A labor-intensive technique would employ relatively more labor and less capital. On the other hand, capital- intensive technique means more capital and less labor.  The choice of technique depends on the prices of the factors of production. That is, if labor is cheap and capital is expensive, a labor-intensive technique would be considered and vice-versa.

"For whom to produce": The solution of this problem is very simple commodity can be consumed only by people who have more purchasing power. Price mechanism determines the income of the workers, i.e.; purchasing power. The purchasing power of the owner of capital is determined in the same way. Thus, when the price of every commodity and every factor of production are determined, the third problem will be solved