Question

Which of the following decisions must be made by all economies? a. How much to produce? When to produce? How much does it cost? b. What is the price? Who will produce it? Who will consume it? c. What to produce? How to produce it? For whom to produce? d. None of the above.

Short answer

How to produce it? For whom to produce? These questions directly correspond to the three fundamental economic questions every society must answer in order to allocate resources efficiently and effectively.

Step-by-step solution

To properly approach this task, we need to have a basic understanding of economics. Economics is the study of how societies, governments, businesses, and individuals allocate their scarce resources. In other words, economies aim to answer a series of basic questions in order to allocate their resources efficiently and effectively. #Step 2: Identify the fundamental economic questions#

It's crucial to know the three fundamental economic questions that every society must answer, which are: What goods and services should be produced? How should goods and services be produced? And for whom should goods and services be produced? These questions arise from the fundamental problem of scarcity, forcing every economy to make choices. #Step 3: Compare options with fundamental economic questions#

Now that we're familiar with fundamental economic questions, let's compare each option given in the exercise with these questions: a. How much to produce? When to produce? How much does it cost? b. What is the price? Who will produce it? Who will consume it? c. What to produce? How to produce it? For whom to produce? d. None of the above. Option (a) and (b) only partially address the fundamental economic questions, while option (c) directly corresponds to the three fundamental questions: - What to produce? (What goods and services should be produced?) - How to produce it? (How should goods and services be produced?) - For whom to produce? (For whom should goods and services be produced?) #Step 4: Choose the correct answer#

Since option (c) completely aligns with the three fundamental economic questions all economies must answer, the correct choice is: c. What to produce? How to produce it? For whom to produce?

Key concepts

Scarcity

The concept of scarcity lies at the heart of economics and represents a fundamental problem every economy must face. Scarcity means that there are limited resources to meet unlimited wants and needs. In other words, the resources available are finite while human desires are infinite. This creates a situation where choices must be made about how to allocate these limited resources.

For example, resources such as land, labor, and capital are not infinite, so economies must decide how best to use them to satisfy the needs of society. This is why the fundamental economic questions exist. Every choice made regarding resource allocation comes with an opportunity cost. This refers to the value of the next best alternative that must be foregone to choose one option.

• Limited resources include time, money, and natural resources such as oil and minerals.
• Human desires cover things like food, shelter, clothing, entertainment, and more.
• Opportunity cost is an important consideration in resource management and decision-making.

Understanding scarcity helps individuals and policymakers make informed decisions and prioritize which goods and services should be produced.

Resource Allocation

Resource allocation deals with determining how scarce resources are distributed for the production of various goods and services. This is crucial for ensuring that the resources at hand are used most effectively and lead to the best outcomes in terms of economic growth and societal welfare.

Within any economy, decisions must be made about who receives certain resources, where these resources should be directed, and how they should be used. Therefore, resource allocation involves making decisions based on efficiency, effectiveness, and equity.

• Efficiency ensures that resources are used in a way that maximizes outputs from the inputs.
• Effectiveness is about achieving the desired outcomes with the resources used.
• Equity concerns the fairness of the resource distribution process, making sure everyone has access to essential goods and services.

The challenge lies in balancing these three aspects to meet the needs of the population, drive economic growth, and maintain a fair society.

Economic Decision Making

Economic decision making is a process that involves selecting a course of action among various alternatives to manage resources and achieve specific outcomes. This process is pervasive at all levels of an economy, from individual choices to governmental policy decisions.

In essence, economic decision making revolves around answering the fundamental economic questions:

• What should be produced?
• How should it be produced?
• For whom should it be produced?

These questions guide the decision-making processes in planning, production, and distribution of goods and services. Understanding demand and supply dynamics, cost-benefit analyses, and potential outcomes all play a role in effective economic decision making.

Demand and supply affect how prices are set and quantity produced.

Cost-benefit analysis helps in comparing the benefits of an action versus the costs associated with it.

Decision-making processes must consider long-term impacts and sustainability.

Economic decision making is key to aligning resource use with the potential to fulfill society's wants and needs, thus addressing scarcity effectively.