At the government level: A society may face basic economic problem

when it does not find enough resources to develop a school network in

rural areas as well as wants to strengthen its defense system. Choice of
strong national defense will lead to the sacrifice of the benefit she
could have from improved education.

The basic economic questions

There are some basic questions faced by every society. How they are
answered depends largely on the type of economic system the country
has. The questions are:

1. What to produce?
2. How to produce?
3. For whom to produce?

1. What to produce? This mainly depends on consumers in a free

market. The consumers choose the product they like and thus
their choices direct the types of production that should be carried
out. The firms will follow this because this is the most profit
maximizing combination. Sometimes the government too can
decide what to produce. The government may decide to produce
an essential good or service which everyone ought to have.
2. How to produce? This question will be answered by those
supplying the goods and services. If the supplier is a private firm, it
will seek to use the method which will give the maximum profit. For
example, production can be done using labour intensive method
and capital intensive method. The private firm will decide on the
method which will give lowest average costs.
If the government is the supplier, it may try to use the method
which promotes welfare of the society rather than maximising the