Question

Positive statements can contain

A)opinions and conditions.

B)facts and predictions.

C)a mixture of facts and opinions.

D)logical arguments mixed with statements of opinion.

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Microeconomics focuses on

A)individual decision makers within the economy.

B)the large parts of the economy.

C)changes in national income.

D)satisfying the needs of the economy.

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In order to study how changing price affects consumer decisions, we must assume all other factors, such as income and the prices of other goods are constant. This assumption is best know as

A)rationality.

B)ceteris paribus.

C)normative economics.

D)behavioral economics.

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Ceteris paribus means

A)making all the necessary changes.

B)other things constant.

C)for certain parameters.

D)let the buyer beware.

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Scarcity

A)exists in all human societies.

B)is a problem for less-developed nations only.

C)used to be a problem, but is not an issue for modern industrial nations.

D)afflicts greedy people only.

Answer 1

1. There are two types of statements in economics:

• Positive statements
• Normative statements

Positive statements are usually factual and objective based and we must be able to test them to accept or reject them.

On the other hand, normative statements are opinion based. Since they are subjective, they cannot be proved or disproved.

So, answer to this question is positive statements contain facts and predictions (Option B).

2. Microeconomics deals with the study of individual firms or households within the economy. It does not focus on the large parts of the economy, changes in national income or satisfying the needs of the economy. Dealing with large parts of the economy or national income come under the aspect of macroeconomics, which studies the entire economy as a whole on an aggregate level.

So, answer is Option A.

3. In order to study how changing price affects consumer decisions, we must assume all other factors, such as income and the prices of other goods are constant. This assumption is best known as ceterus paribus (Option B). Ceterus paribus is a Latin word which means ‘with all other things the same’. So, assuming Ceterus paribus in this case, would help us isolate the effect of prices on consumer decisions.

4. Ceteris paribus means other things constant (Option B).

5. Scarcity exists in all human societies (Option A). In all economics, whether they are developed or developing, resources are limited and wants are infinite. So individuals must make the choice of allocating the scarce resources efficiently in order to serve the want that provides them the most satisfaction. In economics, we assume that all individuals have unlimited wants – whether they are greedy or not, resources are scarce. So the problem of resource scarcity exists in all human societies.