Question

• Explain how unlimited desires and limited resources combine to create the need for economic analysis
• Outline the flow of goods and resources to and from economic decision makers
• Explain the relationship between consumer demand and producer supply
• Describe the four basic types of market structures
• Explain the difference between positive and normative economics and how this affects ethical decision making

Answer 1

The concept of economic analysis advocates the need for a economic system with the maximum profits like in a company or the optimum use of scarce resources in a country. It is this instance where we find the relevance of an economic analysis which is a very systematic approach. In the problem given here, unlimited desires are to be efficiently addressed with the scarce resources in our disposal. Yeah, you might have guessed. To achieve an efficient allocation as well as analyze the profit aspects in that solution, there is a need for economic analysis which is carried out by the economists employed by the firm or the government.

Whenever we try to visualize the flow of goods and resources, the circular flow is the first thing that comes up in the mind. In the circular flow, Households are the primary decision makers as they provide labour, land and capital which are necessary factors to the firms apart from creating demand for the finished products produced by these firms for the market economy.And in the resources market, these households provide resource to firms in the form of labour and land and gets income in return in the form of wages and rent from these firms.

To answer this part I'm not gonna explicitly mention the law of demand and supply, but stating something similar: consumer demand and producer supply both are the two ends of a rope. In simple words, consumer demand is what consumers are interested to buy at a certain price which they can afford; whereas, producer supply is nothing but the goods and services produced by the producer for selling them in the market and earning profits.

There are 4 basic market structures in the economy:

1. Perfect market
2. Monopolistic market
3. Oligopoly
4. Monopoly

For detailed description please refer to the link below:

https://quickonomics.com/market-structures/

There is a subtle difference between Positive economics and Normative economics. Positive economics explains various economic phenomena, while normative economics on the other hand focuses on the value of economic fairness or how the economy should react. An microeconomist is more concerned with the latter. In any ethical decision making process, the combination of positive economics and normative economics will bring out the best results. You might feel that due to the political or authoritarian tone of normative economics narrative, it has a higher say in decision making: but this is not true. Positive economics bring in the 'objective angle' which primarily focuses on facts and the causal effect in a policy. A clear understanding of the difference between positive and normative economics promotes efficient policy-making; that is realizing the right mix of facts (positive economics) and opinions (normative economics)

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