Answer to Question #187584 in Microeconomics for Derrick

Question

what is the fundamental problem of economics?

Answer 1

The main problem of the economy is to ensure the use of available resources in such a way as to achieve the fullest possible satisfaction of the needs of society.

From the discrepancy between limitless needs and the relative scarcity of resources, there is a need to manage. The economic activity of people is a process in which economic theory distinguishes 4 stages: production, distribution, exchange, and consumption. In economic activity, people, regardless of their will and consciousness, enter into relationships with each other. These relations between people in the process of production, distribution, exchange, and consumption are called production or economic relations.

In the process of managing, each person, company, and society as a whole faces problems: what kind of goods to produce, how to produce them, and for whom (how to distribute), i.e. how to determine the conditions and directions for the use of limited resources. At the same time, economic science tries not only to fix what is but also develops the best options for solving the problems that have arisen. In this regard, the problem of rational economic management arises.

All units of the economy that make economic decisions are called economic entities (economic agents). Economic agents are subjects of economic relations involved in the production, distribution, exchange, and consumption of economic goods. The main economic agents are individuals (households), firms (businesses), and the state. Modern economic theory is based on the premise of the rational behavior of agents. This means that the goal of their activities is to maximize results, and the means is to minimize costs. Individuals strive to maximize the satisfaction of needs, firms - to maximize profits, the state - to the highest level of social welfare.