3. Three basic economic decisions

The concepts of scarcity and marginal analysis are vital to understanding how the economy works. In the face of the inevitable неизбежный imbalance between limited productive capability способность and limitless wants, the following questions need to be considered:

1. What, and how much, will be produced?

The productive potential of an economy can not be used to do everything for everybody. Decisions must be made about what to produce and how much of each item to produce with the limited resources available. These decisions are political in nature, and they involve balancing needs and wants of various groups. For example, an increase in the use of productive capacity вместимость to provide military equipment inevitably неизбежно reduces уменьшает the availability доступность of consumer goods such as microwaves, and automobiles. Choices must be made about which goods and services to make available and which to forgo.воздержатся

2. How will goods and services be produced?

There is more than one way to accomplish выполнить any given objective. Goods and services can be produced for profit by business firms or can be produced by government or nonprofit enterprises. Crops урожай can be harvested собран by many workers using hand tools or with specialized machines and fewer workers. Textiles can be loomed соткан and finished by hand, or can be made in automated plants where machines perform many of the tasks in place of workers. Machines or other products (such as chemicals) can be substituted заменены for labor or land when producing any mix of goods. Productive methods that squeeze ограничивать the most out of available means allow позволяет the greatest possible material well-being from limited resources.

3. To whom will goods and services be distributed?

Are they to be distributed equally to everyone so each of us lives in the same type of house, eats the same amount and kinds of food, and wears the same clothes? Or, are goods to be sold to those willing and able to pay? Under this latter method, it's clear that people with higher incomes will enjoy more and better products and services than people with lower incomes. Will some of us be given special privileges to enjoy goods and services regardless не считаясь of our ability to pay for those items? What rules will be used to decide who gets what?

The distribution of material well-being is never perfectly equal. Some people have the financial resources to enjoy great quantities of goods and services of the highest quality. Others live in poverty. No society has yet discovered how to provide equally for the needs and wants of everyone while still offering the incentives побуждает that encourage поощрять high-quality production and technological innovation.

5. Economic forces

Economic forces are the necessary reactions to scarcity. When goods are scarce, those goods must be rationed.

Rationing is a structural mechanism for determining who gets what. The society must determine what that rationing mechanism will be, society must deal with the scarcity, thinking about and deciding how to allocate выделять the scarce good. For example, economic forces might be embodied воплощены in a variety of rationing methods: by lottery, by putting prices on goods, or by some other mechanism.

A market force is an economic force that is given relatively free rein повод by society to work through the market.

Market forces ration by changing prices. When there's a shortage, the price goes up. When there's a surplus, the price goes down. The invisible hand is the price mechanism, the rise and fall of prices that guides руководит our actions in a market.

Societies can not choose whether or not to allow economic forces to operate – economic forces are always operating. However, societies may choose whether to allow позволять market forces to predominate преобладать. Other forces play a major role in deciding whether to let market forces operate. We'll call these other forces the invisible hand-shake – social and historical forces – and the invisible foot – political and legal forces. Economic reality is determined by a contest among these three invisible forces.