For a society to be able to define itself as successful when it comes to how they take care of their people, financially, it should be able to answer the three basic economic questions. The answers to these key economic questions will serve as proof that society is doing its duty in ensuring that the basic needs of its people are met and that it is indeed gaining economic profits. The question: what is economic profit will be answered later in this article.
The three questions of economics which every society is supposed to answer correctly are simply WHAT, HOW, and WHOM. The economic question of WHAT will be produced by an organization, the question of HOW the agreed item will be created, and for WHOM the items will be made.
To answer the first economic question, society must choose WHAT items to produce. The things they would choose might not be the items that their people will need directly. The items that a company decides to make might be based on the resources or raw materials available in their area. A society might decide to produce cars, oil, food, etc.
Meanwhile, a society can be a country, a state, an organization, or even a family. To answer the second economic question, after choosing what item to produce, society will then decide how the picked item will be made. At this point, questions like, “would the raw materials be imported?”, “Will the raw materials be exported for processing?”, “Should foreign experts be invited to process the raw materials?” or “Would local labor be used to process the items that will be processed?” A society should be able to answer these questions as part of their economic plan for the growth of their people.
Finally, to answer the third crucial economic question, society must choose whom the produced goods would be for. Here a community will decide if the product should be for the rich only, the poor, or for whoever can afford it.
For a society to be termed successful, it has to be able to answer these questions while being able to take care of the needs of a majority of its people. Now that we have answered the question: what are the 3 basic economic questions that must be answered by every society? Let us now look at the origin of these three questions.
Origin of the three economic questions that every society must answer
The three economic questions came to play when a need arose for every society to take charge of overseeing the needs of its members. Before the institution of these three basic needs, the problems of resources and scarcity were rampant. It was the case of “every man on his own” and “survival of the fittest.” When people saw that man needed a more coordinated system of ensuring that everyone survived, the basic economic questions were invented.
- Resources: the problem of unavailable resources to satisfy man was and still is an issue that every society has to tackle. No community is gifted with all the raw materials it needs to function. Even those who think that they have all they need still need the skills and expertise of people from other societies, organizations, states, or countries.
- Scarcity: this is simply the fact that human needs and wants will always be insatiable. Even with the availability of all the needed resources – both intra-generated and imported, human beings tend to ever want for more. Therefore, these problems of resources and scarcity led to the invention of the three economic questions in a bid to satisfy a man.
These human problems of resource and scarcity date back to the early man; when there was little to no form of orderliness and organization. Philosophers tried to tackle these problems back in 322bc. Their interest gave way to the three economic questions and also a strategic tactic that will help every society to answer the basic financial questions.
We are made to understand that every society displays how they answer the three economic questions by how they run their political and economic system. In order words, you will know what a community is producing, how they are creating it, and whom they are making it for by closely looking at how they structure their political and economic system. Interesting right? Wait till you get the full information on how it works.
There are three types of economies in existence, the traditional economic system, the command economic system, and the market economic system. Let us now take a critical look at each of these 3 different types of economies.
- Traditional economic system: the traditional economic system is a type of economic system where the resources available in a society is controlled by the customs or traditions of a community. These norms and customs may have been years old, but they are still strictly adhered to and have been passed from generation to another. The resources in these societies are either handled hereditarily or in accordance with what the elders of the society decree. Here, the three economic questions depend on what nature gives society. Societies that practice this financial system usually produce solely for their consumption, or they exchange what they have with neighboring communities – no money is usually involved. This economic system is practiced in Asia, Africa, some parts of South America, et.c.
- Command economic system: in this type of economic system, the resources are controlled by a central government. This same central authority answers the three questions of economics. They decide what will be produced, how it will be made, and who gets the created items. Their political system is called the socialist political system. This economic system was prominent in the soviet union, and its major disadvantage is that it doesn’t know the unique needs of every individual. Here benefits are shared equally, and no tips or extras are given for working extra hours.
- Market economic system or free-enterprise system: in a free-enterprise system, producers decide what they want to produce and how it will be created. The third economic question, WHOM, is decided by who can afford what is being built. Here, the consumers pick what they want, and manufacturers, in turn, produce what the consumers want. The United States of America practices this type of economic system.
In conclusion, the traditional, command, and market economic systems have their individual advantages and disadvantages. They all have a similarity in the sense that they still answer the three financial questions for every society that practice any of them.
Peter Sinenko - Born in Kiev in Ukraine, previously worked as a supply manager at the Zirka Factory. Peter is now officially retired and is happy to share his experience with the readers of Bank Login Lab.