Basic Economic Problems…

Four basic questions must be answered by any economic institution:

(1) What goods and services should be produced and in what quantity?

(2) How should the product be produced?

(3) For whom should it be produced and how should it be distributed?

(4) Who makes the decision?

The answers depend on the use of economic institutions. There are two basic economic

institutions that have been so far used in the real world:

(1) Market economic institution (the price mechanism): Most decisions on

economic activities are made by individuals. This primarily decentralized

decision system is the most important economic institution discovered for

reaching cooperation amongst individuals and solving the conflicts that

occur between them. The market economy has been proven to be only

economic institution, so far, that can keep sustainable development and

growth within an economy.

(2) Planed economic institution: Most decisions on economic activities are

made by governments, which are mainly centralized decision systems.