The two primary methods used to answer the How? question are markets and government. Markets employ voluntary exchanges among buyers and sellers. Governments make use of laws, rules, and regulations that are involuntarily imposed on members of society.

Markets

Suppose, for example, that The Wacky Willy Company is organizing the production of a new line of Wacky Willy Stuffed Amigos. Company decision makers are considering two alternatives--a computerized, high-tech production facility managed by a dozen highly trained computer programmers or a low-tech factory employing hundreds of semi-skilled workers and very little equipment. The Wacky Willy Company can achieve equal production from either alternative. However, because the wage paid to labor is relatively high compared to the cost of equipment, The Wacky Willy Company opts for high-tech production over low-tech.

How does this illustrate resource allocation and the How? question. The higher price of labor induces The Wacky Willy Company to produce Stuffed Amigos with relatively more equipment and relatively less labor. But why is the price higher? Presumably it is higher because labor foregoes more valuable alternatives. The end result is that less expensive resources (equipment) are used, making production more efficient and leading to lower prices.

Government

Suppose, for example, that the Board of Regents of the Ambling Institute of Technology, a comprehensive state-supported university of higher learning, decides that the production of education services relies too heavily on human instruction and not enough on computer technology.

One way to alter the production of education services at the Institute is to pass a rule that seventy-five percent of all exam questions must be based on material available through computer websites. Any instructor violating this edict is fired (if untenured) or receives lower raises (if tenured). How does this address the How? question? In all likelihood, instructors seek to avoid punishment by producing education with more computer technology and less in-class human lectures.