Google
Wednesday 
August 20, 2014 

AmosWEB means Economics with a Touch of Whimsy!

AmosWEBWEB*pediaGLOSS*aramaECON*worldCLASS*portalQUIZ*tasticPED GuideXtra CrediteTutorA*PLS
Today's Index
Yesterday's Index
315.6

Help us compile the AmosWEB Free Lunch Index. Tell us about your last lunch.

Skipped lunch altogether.
Bought by another.
Ate lunch at home.
Brought lunch from home.
Fast food drive through.
Fast food dine in.
All-you-can eat buffet.
Casual dining with tip.
Fancy upscale with tip.

More About the Index
Least favorite number?

0.
1.
7.
9.
13.
99.

INDUCED GOVERNMENT PURCHASES: Government purchases that depend on income or production (especially national income or gross national product). An increase in national income triggers an increase in induced government purchases. Induced government purchases is graphically depicted as the slope of the government purchases line and is measured by the marginal propensity for government purchases. The induced relation between income and government purchases, as well as other induced expenditures, form the foundation of the multiplier effect triggered by changes in autonomous expenditures.

Visit the GLOSS*arama


THREE QUESTIONS OF ALLOCATION:

The three basic questions that an economy must answer because of limited resources and unlimited wants and needs are: What? How? and For Whom? The basic problem of scarcity requires every society to determine: What goods to produce? How to produce the goods? And who receives the goods that are produced?
The pervasive problem of scarcity means that every society must choose among alternative uses of its limited resources. Society has only so much labor, capital, land, and entrepreneurship that can be used to satisfy the unlimited wants and needs of its members. This decision-making process, more commonly termed allocation, is summarized by the three questions: What? How? For Whom?

InBs12

What?

The first question society must answer is: What goods and services are produced with society's limited resources? Does society make bagels or bread? Hammocks or hot fudge sundaes? Computers or Cadillacs? Birdfeed or battleships? This question is necessary because resources are limited but wants and needs are unlimited. Society wants a lot of goods and services, but everything cannot produced for everyone. Choices must be made. Society must choose among the wide assortment of alternatives when selecting which goods to produce.

How?

The second question that needs to be answered is: How are society's limited resources combined to produce goods and services? Are jogging shoes made with leather or nylon? Are houses built with wood or brick? Are cars made with high-tech robots or manual labor? Society, must decide which limited resources to use for which goods. Every good cannot be made using the same resources. A hungry consumer may want a hot fudge sundae made with expensive creamy custard, but opts for less expensive ice milk.

For whom?

The third of the three questions of allocation is: Who receives the goods and services produced with society's resources? All goods given to benevolent economics instructors? Should goods be distributed according to shoe size? What if people buy goods with their incomes? Now, there is a thought. But, what about people who have no income? With limited resources, the production of goods is also limited. With limited goods, everyone cannot have everything. Society has to decide who gets what.

Market Answers

Markets answer these three questions through prices. For example, resource owners (those producing goods) decide What? goods to produce based on relative prices. As such, a farmer like Herb Haberstone plants relatively more land to corn and less to soybeans if the price of corn is high compared to the price of soybeans. But, why is the price of corn higher? The answer is that buyers--consumers, the public, people, society--place a relatively higher value on corn than on soybeans, because corn provides relatively more satisfaction of unlimited wants and needs.

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

The other method of resource allocation process in a mixed economy, government, also answers these three questions. Government, however, uses its coercive powers of laws, regulations, spending, and taxes for the answers. Government can pass laws that simply dictate What? goods are produced, How? those goods are made and For Whom? the goods are produced. It often uses the powers of taxation and spending to answer these question, as well. For example, taxes can be spent on highways rather than education to answer the What? question. Or taxes can be placed on labor to encourage the use of capital to answer the How? question. Lastly, taxes can be used to transfer income from workers to nonworkers, as with Social Security, to answer the For Whom? question.

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

<= THIRD RULE OF INEQUALITYTHREE-SECTOR AGGREGATE EXPENDITURES LINE =>


Recommended Citation:

THREE QUESTIONS OF ALLOCATION, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2014. [Accessed: August 20, 2014].


Check Out These Related Terms...

     | What? | How? | For Whom |


Or For A Little Background...

     | scarcity | limited resources | unlimited wants and needs | third rule of inequality | economic system | mixed economy | distribution standards |


And For Further Study...

     | economics | economic goals | efficiency | allocation | equity | seven economic rules | four estates | government functions | political views | production possibilities | opportunity cost | opportunity cost, production possibilities | rationing | price rationing |


Search Again?

Back to the WEB*pedia



State of the ECONOMY

U.S. Imports
June 2014
$237.4 billion
Down 1.2% from May 2014 Econ. & Stat. Admin.

More Stats

BLACK DISMALAPOD
[What's This?]

Today, you are likely to spend a great deal of time waiting for visits from door-to-door solicitors trying to buy either a T-shirt commemorating the first day of winter or software that won't crash your computer. Be on the lookout for bottles of barbeque sauce that act TOO innocent.
Your Complete Scope

This isn't me! What am I?

Paper money used by the Commonwealth of Massachusetts prior to the U.S. Revolutionary War, which was issued against the dictates of Britain, was designed by patriot and silversmith, Paul Revere.
"A successful man is one who can lay a firm foundation with the bricks others have thrown at him. "

-- David Brinkley, newsman

DCE
Domestic Credit Expansion
A PEDestrian's Guide
Xtra Credit
Tell us what you think about AmosWEB. Like what you see? Have suggestions for improvements? Let us know. Click the User Feedback link.

User Feedback



| AmosWEB | WEB*pedia | GLOSS*arama | ECON*world | CLASS*portal | QUIZ*tastic | PED Guide | Xtra Credit | eTutor | A*PLS |
| About Us | Terms of Use | Privacy Statement |

Thanks for visiting AmosWEB
Copyright ©2000-2014 AmosWEB*LLC
Send comments or questions to: WebMaster