Ø Key Definitions:
Economics : The
study of how individuals and society make decisions about how to use scarce resources
to satisfy unlimited material wants.
Scarcity : The
condition that exists when there are not enough resources to satisfy all the
wants of individuals or society.
Choices : The
decisions individuals and society make about the use of scarce resources.
Ø Define opportunity costs:
The next highest valued alternative that is
given up when a choice is made.Having to select one option involves an
opportunity cost. Opportunity cost is the best alternative forgone. Due to the
economic problem of wants exceeding resources, economies have to decide what to
produce, how to produce it and who will receive what is produced. What to
produce, how to produce and who will receive what is produced are sometimes
referred to as the three basic questions which all economies have to answer.
Ø What do you mean by ‘Ceteris
paribus’ ?:
Ceteris paribus means
other things being equal. Economists often make use of ceteris paribus to
consider the possible effects of a change in one variable on another variable.
For instance, an increase in real disposable income would be expected to lead
to an increase in demand for gold watches, on the assumption that the other
infl uences on demand for gold watches are not changing
Ø Positive and normative
statements :
A positive statement is
a statement of fact. It can be tested to assess whether it is right or wrong. A
normative statement is a statement based on opinion. It is a value judgement
and, as such, cannot be proved right or wrong. There are both positive and
normative statements in economics. ‘The unemployment rate in a country is 6%’
is a positive statement. In contrast, ‘the government’s key priority should be
reducing unemployment’ is a normative statement.
Ø Positive and normative
economics :
Positive economics (as opposed to normative economics)
is the branch of economics that concerns the description and
explanation of economic phenomena. It focuses on facts and
cause-and-effect behavioral relationships and includes the development and
testing of economics theories.
Normative economics (as opposed to
positiveeconomics) is a part of economics that
expresses value or normative judgments about economic fairness
or what the outcome of the economy or goals of public policy ought to be.
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