The answers to the 3 economic questions vary depending on the type of economic system used by each society. By reading this guide, you will be able to know, What Is the 3 Economic Questions in Economics with Examples.

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What is economics?

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The study of the production, distribution, and consumption of goods and services is known as economics. The late Paul Samuelson, America’s first Nobel Prize winner in economics, is often accredited with presenting the first effective and easy description of the economic problem – namely, that in order to solve the economic problem, societies must strive to address 3 economic questions,

  • What to produce?
  • How to produce?
  • To whom should we produce?

Economists research the relationships between households and companies, as well as how the factors of production are combined to manufacture the products and services which people need. Essentially, economists attempt to answer 3 sets of questions.

The way a society organizes the production and distribution of goods and services is referred to as its economic system. A society’s choice of a system reflects the philosophical and political concepts that it was founded on. There have been 3 basic forms of economic systems throughout history.

What are the 3 economic questions?

What Is the 3 Economic Questions in Economics? + Examples

1. What should we produce?

Given the limited occupational resources, raw materials and time available, economic operators must determine what to produce. Food and shelter are the two most important needs of life in most primitive economies. Even so, as productivity rises, more resources become available to spend on non-essential goods like leisure and education.

Production is dictated by market forces in a free market economy. Consumers would demand goods that firms and entrepreneurs would produce. In a mixed economy, the government might decide to manufacture more public goods that are not profitable but improve economic welfare.

2. How should we produce it?

Companies must also choose the best combination of factors to generate the desired product and service quality. How much should labour, land, and resources be used for manufacturing consumer products, like computers and motor cars?

3. For whom should we produce it?


These are the individuals who are able to pay for the products and services provided and are, therefore, the direct beneficiaries of the manufacturing process. Although objective economic analysis could be applied to the and how questions, answers for whom issue are fraught with philosophical and theoretical pitfalls.

Income is obtained from the selling of the services of factors of production, and it identifies a person’s ability to pay. You get paid when you sell your labour services. Wage or salary is the term for the rental price of labour. You are paid when you rent the services of money. Interest is the term used by economists to characterize the price of renting capital.

The relationship of supply and demand determines the returns to the owners of these factors of production in market economies. As a consequence, a person’s income is determined by the quality and quantity of the factors of production that he or she owns. Questions regarding income distribution are essentially questions about the ownership of factors of production, as well as the supply and demand of those factors.

What are the types of economic systems?

What Is the 3 Economic Questions in Economics? + Examples

Around the world, there are types of economic systems. While they all share certain basic characteristics, they each have their own distinct characteristics. Each economy works on a single set of premises and conditions. Traditional economies, command economies, and market economies are the three major types of economic systems.

1. Traditional economy

As the names indicate, a traditional economy relies on a traditional approach. These economies are based on the most basic type of economy and on ancient rules—the emphasis on products and services that fit their traditions, values and history in a traditional economy.

The main focus of traditional economies is agriculture, livestock farming, fishing etc. A traditional economy uses the trading system and has no currency or money definition. They Centre their economies on their families or tribes. These economies just believe in making what they want and need. They do not find any market surplus necessary. There is no trading concept.

If this traditional economy does not adapt, it is highly vulnerable to environmental changes. As these economies grow, they begin to incorporate farming. They also trade their excess crops and begin to develop from this traditional economy. And if a traditional economy combines with a command or market economy, it transforms into a traditional mixed economy.

Then money (monetary expenditure) also takes on significance. The traditional economy of this kind is suitable for under-development and developing economies. Also, in some pockets of Africa and the Middle East, these economies are present.

2. Command or centrally planned economy

A large part of the economy is controlled by a centralized power in a command economic system. In the Soviet Union, for example, the central government made the bulk of decisions. The communist ideology was based on this type of economy.

Since the government plays such an essential role in the economy, it is often involved in anything from planning to resource redistribution. A command economy will ensure a steady supply of capital while rewarding the people with low prices. As a result of this capability, the government typically owns all vital industries such as utilities, aviation, and railroads.

The government would potentially generate enough jobs to offer goods and services at a fair price in a command economy. On the other hand, many command economies tend to concentrate on the most profitable commodities, such as oil.

3. Market economy

The idea of free markets is at the core of the market economic system. In other words, the government plays a minor role. The government has no influence over capital and does not intervene with major economic sectors. Rather, people and the supply-demand relationship are the sources of regulation.

The majority of the market economic structure is theoretical. That is to say; there is no such thing as a pure market system. What is the reason for this? All economic systems, after all, are subject to some sort of central authority intervention. Many states, for example, pass legislation to restrict fair trade and monopolies.

From a theoretical perspective, a market economy allows for significant growth. A market economic system, it is argued, produces the most growth. The greatest drawback of a market economy is that it enables private companies, especially those with valuable resources, to amass considerable economic power. Since those who prosper economically control the majority of wealth, the distribution of resources is inequitable.

How economic systems fulfil the 3 economic questions?

 Economic SystemsWhat should we produce? How should we produce it?For whom should we produce it?Examples
 TraditionalDetermine by tradition·         Economic roles often passed from generation to generationDetermined by customUsually centered on traditional family and social units such as tribe.#Aborigines of Australia
#Mbuti o central Arica Inuit of Canada
 CommandDetermined by government officialsDetermined by government officialsDetermined by government officials#Old kingdom Egypt Middle ages in Europe #Zhou dynasty in China
 MarketDetermined by individualDetermined by individualDetermined by individual#United states #Canada #Australia

What is the mixed economy?

What Is the 3 Economic Questions in Economics? + Examples

A mixed economic structure is one that combines aspects of both capitalism and socialism. A mixed economic structure protects private property and allows for some economic freedom in capital allocation while also allowing governments to interfere in economic activities to achieve social objectives.

Mixed economies are less efficient than pure free markets, according to neoclassical theory, but government interventionists argue that the basic conditions for free-market efficiencies, like reasonable knowledge and rational market participants, could not be met in practice.

Characteristics of mixed economy

The ownership of goods by both private and government/state-owned organizations is a key feature of a mixed economy. Monopolies are possible in this type of economy, but the government keeps a close eye on it. The government could control some but not all aspects of the economy in order for it to be mixed. In certain mixed-economy nations, for example, the government might have power over health care and welfare.’

Examples of mixed economy

‘Let’s take a closer look at the mixed economy example. ‘For instance, the United States the United States is made up of both private and government/state-owned businesses. Occasionally, the government intervenes to help the economy. Welfare and unemployment benefits are 2 examples of government aid in the United States. These organizations offer financial aid to those in need. There are a variety of welfare services available, including:

  • Assist with housing
  • Children’s help
  • Health-care services

Food stamps (tickets and funds allocated to purchase food for low-income people)

Minimum wage policies are also controlled by the government. These laws must be followed for both private and government-owned companies.’

What are the 2 types of the mixed economy?

The mixed economy can be divided into two types:

1. Capitalistic Mixed Economy

The ownership of varied factors remains under private control in this type of economy. The government should not get involved in any way. In this system, the government’s role is to make sure rapid economic growth while preventing the concentration of economic power in a few hands.

2. Socialistic Mixed Economy

The state controls the means of production in this system. Demand and supply powers are used to make basic economic decisions. Where and where demand is needed, though, the government takes steps to ensure that the basic concept of economic growth is not hindered.

This system, though, is divided into 2 parts once more:

(i) Liberal Socialistic Mixed Economy

Under this system, the government intervenes to bring about timely improvements in market forces in order to maintain the current rate of rapid economic growth.

(ii) Centralized Socialistic Mixed Economy

In this economy, major decisions are made by a central organization in response to economic needs.

Watch Economic systems and macroeconomics [Video]

Top 5 FAQ and answer session on 3 economic questions

  1. What is the importance of the three economic questions?

    When demands surpass available resources, we must address the three basic economic questions (what and how much g/s to produce, how would they be produced, and for whom would they be produced).

  2. In communism, who answers the 3 economic questions?

    The central government regulates the factors of production and addresses the 3 economic questions for the whole society in a centrally planned economy, also considered as a command economy. When it comes to centrally planned economies, the terms socialism and communism are commonly used.

  3. How are the 3 economic questions answered?

    A market economy, in its most basic form, responds to the 3 economic questions by resource allocation and commodities through markets, where prices are established. In its purest form, a command economy responds to the 3 economic questions by enabling the government to make allocation decisions from a central location.

  4. What is the economic system's primary goal?

    What a society decides to produce, how it produces, and who it distributes products and services to. An economic system's primary aim is to ensure that people have a basic standard of living or quality of life.

  5.   What is the oldest economic system?

    The traditional economy is the oldest economic system and is located in Asia, Africa, and South America. Traditional economies continue to run their markets in the same way that they have for centuries (i.e., tradition).



The economic theory deals with how society responds to the basic economic questions of what products and services must be produced and how they should be produced in what quantities (i.e. choose a suitable manufacturing technology) and who will be produced for those goods and services.

A country’s economic system is dependent on how it answered these 3 economic questions. A country’s economic system is the decision-making process that could address these questions. Each society should answer 3 economic questions in order to meet the needs of its people.

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