Every human society, whether it is an advanced industrial nation, a centrally planned economy, or an isolated tribal nation- must confront and resolve three fundamental economic problems. Every society must have a way of determining what commodities are produced, how these goods are made, and for whom they are produced.
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- What commodities are produced and in what quantities? A society must determine how much of each of the many possible goods and services it will make and when they will be produced. Will we produce pizzas or shirts today? A few high-quality shirts or many cheap shirts? Will we use scarce resources to produce many consumption goods (like pizzas)? Or will we produce fewer consumer goods and more investment goods (like pizza-making machines), which will boost production and consumption tomorrow?
- How are the goods produced? A society must determine who will do the production, with what resources, and what production techniques they will use. Who farms and who teaches? Is electricity generated from oil, coal, or from the sun? Will factories be run by people or robots?
- For whom are goods produced? Who gets to eat the fruit of economic activity? Is the distribution of income and wealth fair and equitable? How is the national product divided among different households? Do high incomes go to teachers or athletes or autoworkers or venture capitalists? Will society provide minimal consumption to the poor, or must people work if they are to eat?
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