- Economic activity
- Economic activity is the production, exchange and use of goods and services, carried out to satisfy people's needs and wants.
- Economics
- Economics is the study of how people, firms and governments make choices about using scarce resources, rather than the activity itself.
The three questions every economy must answer
Can you name the three questions every economy must answer?
Scarcity means no economy can make everything everyone wants, so each must settle three questions. They are answered somewhere, by someone, in every economy, rich or poor, whether or not anybody sets out to answer them.
What to produce is the decision about which goods and services to make with the available resources, and how much of each.
Can you think of an example?
A farmer in Kent can plant a field with wheat or with apple trees, not both. Across the whole economy, building workers can put up more houses or more hospitals.
How to produce is the decision about which mix of resources and methods to use, such as more workers or more machines.
Can you think of an example?
A car plant can weld car bodies with robots watched by a few engineers, or with many workers using hand tools. Both make the same car from a different mix of labour and capital.
For whom to produce is the decision about who gets the goods and services made, and so who benefits from economic activity.
Can you think of an example?
A new phone in a UK shop goes to whoever pays its price, so income decides who gets one. An NHS hip operation goes to the patient with the clinical need, free at the point of use.