How does our economy answer the fundamental economic questions: 1) What to produce 2) How to...

How does our economy answer the fundamental economic questions:
1) What to produce

2) How to produce

3) For whom to produce

Explain how a fast food restaurant would answer each of these questions in our economy.

Expert Solution

1)

What to produce is answered by the economy by knowing that those goods must be produced which have a positive price. Goods with a positive price can be sold and revenue be earned from them. So, the task is to produce goods which command positive prices and their demand = supply.

2)

This question essentially answers what kind of technology to be used? capital intensive or labor intensive?This choice depends on the prices of factors of production that is salaries, wages, rents, and more. Which ever factor is available at a cheap rate, that factor shall be used in the production process.

3)

Obviously the goods are produced for the buyers. It is not any random buyer. Goods are produced for buyers who possess the purchasing power to buy those goods.

The fast food restaurant will produce goods which can be cooked easily and quickly. This technology will mainly be labor intensive and will produce for the young adult population.

Rahul Sunny answered 1 year ago

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