In our economic system, how is government involved in answering the four economic questions?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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Different textbooks often phrase the fundamental economic questions differently.  Some textbooks (as seen in the link below) list three fundamental economic questions, not four.  One way to state the economic questions is this:

  1. What will be produced?
  2. How much will be produced?
  3. How will things be produced?
  4. For whom will they be produced?

Even though our system is generally a market system, the government does get involved to some degree in answering these questions.  Let us look at how this is so.

  1. The government has some input into what will and will not be produced.  For example, it decrees that no cocaine or other illegal drugs will be produced.  It decrees that certain amounts of ethanol will be produced.  It ensures that education will be produced (by teachers and other school workers).
  2. This is very similar to the previous question.  The government, for example, requires that there will be education for every child of school age.  It determines how many tanks and military airplanes will be produced.
  3. The government places all sorts of restrictions on how things will be produced.  They will not, for example, be produced using child labor.  They will not be produced by workers making less than minimum wage.
  4. The government determines this to some degree through various programs.  The food stamp program ensures that some food will be produced for poor people.  Laws on education ensure that education will produced for everyone.

The government does not completely answer these questions in our system.  It only has a little bit of input into how the questions are answered.

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