Question

1. What is the relationship between marginal cost (MC) and average total cost (ATC)?

2. What is the difference between positive and normative statements? Which do economists generally consider the more persuasive statement type, and why?

3. What are the conditions needed for the Supply and Demand model to hold?

4. What is the difference between Quantity Demanded (Q_D) and Demand (D)?

Answer 1

1.

The Shape of MC is U shape, it means initially MC decreases with the increase in the output and after production of some output, the MC become minimum and after this MC starts increasing.

When MC was below ATC, then ATC was declining after that MC cuts ATC at its minimum point after that ATC starts increasing. ATC is U shaped but MC is upward sloping U shape curve.

It means ATC curve is always U shaped.

2.

The normative economics Statement is based on the ideological, opinion and value judgments. Its main objective is to summarize people's desire to various economic developments and situations by asking or saying that what should happen or what ought to be.

Since a positive statement can be defined as an objective statements which can be tested, amended or rejected by verifying the available evidence.

Since in case of positive statement, the given statement can be tested with the available data and verified, so there is no need of persuasion or less need of persuasion in case of positive statement.

But in case of normative statement different economists have different opinion about the statement, so each economists try to convince each other for justifying his or her opinion and their correctness. Hence it unlikely that this issue or disagreement to be resolved. Hence it can be said that normative statement is more persuasive statement.

3.

Since the law of demand stats that there is an opposite relationship between price and quantity demanded and other factors which affect the demand remains same. A numerical tabulation of this relationship is known as the demand schedule. The demand curve is the graphical representation of the law of demand. The demand curve is negatively sloped. The demand curve shows an inverse relationship between price and quantity demand.

The demand determinant are; Its own price, price of substitute goods, price of complementary goods, income of the consumer and taste and preferences of the consumers.

Since the law of supply states that there is a direct relationship between price and quantity supplied and other factors that affect the supply remains the same. A numerical tabulation of this relationship is known as the supply schedule. The supply curve is the graphical representation of the law of supply. The supply curve is positively sloped.

The supply curve shows the direct relationship between price and quantity supplied. The determinants are; Technology, costs of inputs, and the number of potential suppliers.

4.

In case of change in the quantity demand, there will be movement along the demand curve and in case of change in the demand, there will be shift of the demand curve. It means quantity demand arises when there is change in the price of its own good.

Hence it can be said that a change in demand means a shift in the demand curve while change in the quantity demanded means a movement along the demand curve are correct.

It means demand arises when there is change in the factors affecting demand rather than change in its own price.