The economic problem
Every economy faces the economic problem, which is the problem of how to make the best use of limited resources. The economic problem exists due to the reason being that the needs and wants of people exceed the limited resources to satisfy their needs and wants. When unlimited wants meet limited resources, it is known as Scarcity. Humans are greedy by nature and it is because of the need to satisfy needs and wants that economies like Australia exist. The resources, otherwise known as the factors of production: land, labour, capital and enterprise are limited, and can be used in different ways, and it is important for them to be used to maximise utility. A market economy is an economy driven by the forces of supply and demand. The basic concept of this system is that the producers and consumers are the ones who decide how to utilise the resources. Thus, the market forces decide what to produce, how much to produce and for whom to produce. For example, If people want more of an item or service, then producers will manufacture more of them or more businesses will open up to provide the service . If people do not want an item or service, then producers will stop manufacturing it and businesses providing that service will close down. The Market economy is generally the most efficient means for allocating your limited resources in an economic system. The main decision made by markets in organising resource distribution are production, distribution and exchange. The four important production questions are: What to produce, How much to produce, How to produce, and to whom to distribute. What should be produced? What should be produced is decided by the preferences of consumers through their demand for goods and services as well as the availability of the resources. Market economies use supply and demand to efficiently maximize the quantity of the product while considering the availability of the resources whilst satisfying the consumer. How to...
Please join StudyMode to read the full document