Firstly, the economic problem is split into three questions, which are: what to produce? How to produce? Who to produce for? These three questions can also be summed up as scarcity which is the inadequate amount of resources available. Consumers have wants which are unlimited; they would always want more, but due to the economic problem, scarcity, not everyone will get there ‘want’ fulfilled, therefore causing a problem. Different countries can attempt to overcome the economic problem in several ways; which is to apply a different economy system to their country. Due to scarcity consumers will now have to make a choice of what they want, by sacrificing the next best alternative when making a decision, this is known as opportunity cost.
The private owner would then get rent and will hope to maximise profit through the process, this also limits the government’s role.
Since there is little or no government influences in free market economy, firms are able to sell anything they want but it is mainly productions of customer’s want. It’ll be a free enterprise so no dictatorship telling labours where they have to work, labours can take any job they want. Also with no barriers to entry or exit it is easy for competition to enter the market and it will be a highly competitive market. Consumers will be looking for which firm can offer them the best deal on their wants whereas firms will be competing for customers and suppliers. Firms may have to give more to the suppliers in order to get them attracted to the firm and decrease price in order to attract consumers. Having competition it may be beneficial to a firm as they may be able to get ideas from a rival firm and yet do better than them.
“Consider Microsoft's standard practice of absorbing any new and interesting technology into their operating system. In DOS 6 it was disk compression. In Windows 3.11 it was network file access. In Windows 98 the target was the web browser. In Windows XP it may well be streaming multimedia. It's very hard to exist in a marketplace when one of your competitors is more or less giving away your product for free, and thus companies like Stac, Novell, and Netscape have been driven into relative obscurity. They may