Organisation of Economic Activities

Once we accept that scarcity forces every society to answer the three basic questions — what to produce, how to produce, and for whom to produce — a further question follows: through what arrangement are these decisions actually made? How does a society organise the millions of production, exchange, and consumption activities of its members so that they fit together?

Broadly, there are two ways of doing this. The basic problems can be solved either through the free interaction of individuals, each pursuing her own objectives, as happens in a market; or in a planned manner by some central authority, such as the government. …