Microeconomic Basics

Question 1

What is the Economic Problem?

Answer 1

• How to make the best use of scarce resources available to satisfy unlimted wants

Question 2

What is the study of Economics

Answer 2

• A study of the choices that people take under the conditions of scarcity and uncertainty

Question 3

Explain the “Ceteris Paribus Assumption”

Answer 3

• Means: All other things being equal
• When observing the change of one factor, it assumes that all other factors remain constant
• Allows economists to analyze the relationship between variables without the complications of other influencing factors

Question 4

Explain the “Ceteris Paribus” assumption using the law of demand

Answer 4

• L.o.D states that if price increases, quantity demanded decreases and if price falls, quantity demanded increases.
• Here, “ceteris paribus” helps isolate the impact of price changes on quantity demanded, if factor income, taste and preferences, and the prices of relatd goods

Question 5

What are positive statements?

Answer 5

• Positive statements are objective statements that can be tested and evaluated based on empirical evidence
• Describe how the world is without expressing value judgements or opinions

e.g.”An increase in the UK minimum wage will lead to higher unemployment among low-skilled workers”

Question 6

What are normative statements?

Answer 6

• Normative statements are subjective, involving value judgments about what ought to be
• They reflect personal beliefs, moral considerations, or policy preferences and often include political elements
• Unlike positive statements, they cannot be tested through empirical analysis alone

e.g.”The government should increase funding for state education to improve overall social welfare.”