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Chapter 1: Problem 21

What are the three fundamental problems of any society"

Short Answer

Expert verified
The three fundamental problems of any society are: 1) What to produce, which involves deciding what goods and services to prioritize based on the needs and desires of citizens, resource availability, and cultural preferences; 2) How to produce, which involves determining the most efficient way of utilizing resources and considering factors such as cost, efficiency, and environmental impact; and 3) For whom to produce, which revolves around the allocation of resources, distribution of income and wealth, and addressing issues of equity, fairness, and social welfare.

Step by step solution

01

Problem 1: What to produce?

The first fundamental problem of any society is deciding what goods and services to produce. Since resources are scarce and wants are unlimited, societies must choose which goods and services they want to prioritize. This decision requires comparing the needs and desires of the citizens and taking into account various factors such as the availability of resources, technological capabilities, and cultural preferences.
02

Problem 2: How to produce?

Once a society decides what to produce, the next question is how to produce those goods and services. This involves determining the most efficient and effective way of utilizing resources. Societies must consider various production methods – including labor, capital, land, and technology – and decide which combination works best for their needs. Factors such as cost, efficiency, environmental impact, and technological capabilities are considered when answering this question.
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Problem 3: For whom to produce?

The third fundamental problem of any society is deciding for whom the goods and services should be produced. This problem revolves around the allocation of resources and the distribution of income and wealth among the members of society. Societies must decide how to distribute the goods and services produced among the population, which includes addressing issues of equity, fairness, and social welfare. This problem also involves determining the role of government and market forces in the distribution of resources.

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Most popular questions from this chapter

"Because economic theories are abstractions from reality they are impractical and unrealistic." True or False? Why?

What is the law of increasing relative costs, and how does it relate to the law of diminishing returns? Illustrate the effect of the law of increasing relative costs on the shape of the production-possibility curve.

What is the "production-possibility frontier"? What can be concluded about an economy which is (1) operating on its production-possibility frontier, and (2) operating inside its production-possibility frontier?

What is the fallacy of composition? Give an example of a misconception in economics which results from this fallacy.

One of the reasons Adam Smith supported the Free Market was because he believed that what is good for the individual is good for the country. So, since everyone would like to choose what they want to buy, it must be good for the country to give everyone free choice. Identify the error in Smith's logic and give a counter example.
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