Contrast positive and normative economics. How can economists carry out normative analysis?
What will be an ideal response?
Positive economics involves factual questions about what did or will happen as the result of some decision. More specifically, positive economics deals with the cause-and-effect analysis of actions and their consequences. Positive economic questions are testable using the scientific method. In contrast, normative economics deals with value judgments about what ought to happen. Economists can carry out normative analysis by applying the principle of individual sovereignty; the idea that each individual knows what is best for him or her.
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In which of the following industries would we expect collusion to be most effective?
a. retail gasoline, where most gas is sold by a large number of small dealers b. crude oil production, where most oil is sold by a small number of large sellers c. housing construction, an industry dominated by local firms that produce unique products d. soybean production, where there are large numbers of farmers in many countries
Assume that the expectation of declining housing prices cause households to reduce their demand for new houses and the financing that accompanies it. If the nation has low mobility international capital markets and a flexible exchange rate system, what happens to the quantity of real loanable funds per time period and real GDP in the context of the Three-Sector-Model?
a. The quantity of real loanable funds per time period falls, and real GDP falls. b. The quantity of real loanable funds per time period falls, and real GDP rises. c. The quantity of real loanable funds per time period rises, and real GDP remains the same. d. The quantity of real loanable funds per time period and real GDP remain the same. e. There is not enough information to determine what happens to these two macroeconomic variables.
Which of the following statements is NOT true about the price system?
A) The price system allows resources to flow from low-valued uses to high-valued uses. B) Firms have total control over what consumers can buy. C) Individuals have freedom to purchase what they want. D) The price system allows for economic efficiency.
In 18th century Europe, governments gave guilds legal authority to limit production of goods. How did this authority either obstruct or improve the market mechanism?
A) It improved the market mechanism by making it more efficient because the guilds were able to quickly identify and rectify any market shortages and surpluses. B) It improved the market mechanism because the government's actions provided the correct set of signals to the market so that producers can adjust their output to better meet the needs of consumers. C) It obstructed the market mechanism because the guild's actions prevented the forces of demand and supply from coordinating the self-interested decisions of producers and consumers. D) It obstructed the market mechanism because with one more party having to coordinate activities (the guilds) there were delays in getting the products to consumers.