The questions of economics address which of the following? choose three answers.

What?

How?

For whom?

Market Answers

Prices work much the same way for answering the How? question. Producers decide which resources to use in the production of a good, based on relative prices. For example, snack cakes, crackers, and similar products use soybean oil, canola oil, or cottonseed oil during preparation, depending on which has the lowest price. Over the decades, manufacturing companies have become more automated (that is, they use more capital and less labor) as wages paid to labor have risen.

Prices are also the guiding light when markets answer the For Whom? question. In this case, the relative prices paid to labor and other resource owners for the production of different goods are the key. Resource owners paid relatively higher prices receive relatively more income, which they can use to purchase relatively more goods. They are the ones who receive more production. But why do these resource owners have relatively higher wages? The reason is that the goods they produce are relatively more valuable--that is, provide more satisfaction--to society. A professional baseball player, for example, receives more income than a professional economist, because the contribution of the baseball player to the good produced (baseball entertainment) is more highly valued by society than the contribution of the good produced by the economist (economics education).

Government Answers

Whether answers come through market exchanges or government mandate, every society, regardless of economic or political system MUST address these three questions.