It is noteworthy to state that solutions to these fundamental problems can be determined by the type of economic system. This fundamental economic problem requires an intensive study of time dynamics and seasonal variation vis-a-vis the satisfaction of consumers' needs. When to produce: Consumer satisfaction is partly a function of seasonal analysis as the forces of demand and supply have a lot to do with time.This fundamental problem of how the output will be distributed seeks to identify the best possible medium through which bottlenecks and the clogs in the wheel of the chain of economic resources distributions can reduce to the barest minimum and optimize consumers' satisfaction. How the output will be distributed: Production is said to be completed when the goods get to the final consumers.On a broad note, the possible production method includes labor-intensive and capital-intensive methods. How goods shall be produced: The fundamental problem of how goods shall be produced is largely hinged on the least-cost method of production to be adopted as gainfully peculiar to the economically decided goods and services to be produced.In this regard, the critical evaluation of the needs of the society based on population distribution in terms of age, sex, occupation, and geography is very pertinent. The theory of pricing, in this context, has to do with the economic decision-making between the production of capital goods and consumer goods in the economy in the face of scarce resources. What kinds and quantities of goods shall be produced: This fundamental economic problem is anchored on the theory of pricing.
All economic systems must confront and solve the four fundamental economic problems: The mode of production is a related concept. It includes the combination of the various institutions, agencies, entities, decision-making processes, and patterns of consumption that comprise the economic structure of a given community.Īn economic system is a type of social system. In this model the use of natural resources and the generation of waste (like greenhouse gases) is not included.Īn economic system, or economic order, is a system of production, resource allocation and distribution of goods and services within a society. Circulation model of economic flows for a closed market economy.
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