Question

What are the basic economic problems? How do we solve those problems in an economy like the United States?

Answer 1

Following are the three basic economic problems:

1) What to produce

2) How to produce

3) For whom to produce

These problems can be solved by allowing the free market to operate effectively. The government should minimize its role and allow the market forces to find the required equilibrium so that the 'invisible hand' of the market allocates resources effectively to solve the basic economic problems. A well-functioning free market can solve the basic economic problems most effectively. The government should address only the market failures and ensure private property rights, patents laws, etc. The market would allocate resources according to the relative demand and supply of resources through the price mechanism.