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Explain the following: book(Colander – Chapter 1) Opportunity Costs (constant and increasing) Positive Economics Normative Economics

  1. Explain the following: book(Colander – Chapter 1)
  1. Opportunity Costs (constant and increasing)
  2. Positive Economics
  3. Normative Economics
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Answer #1

A. Opportunity cost refers to the value foregone in order to select another alternative. For example, I can use my next 2 hours by either watching a movie or studying economics. Here, the opportunity cost of watching the movie is the lost marks and knowledge in economics. The opportunity costs can either be decreasing or constant or increasing.

B. In positive economics, we discuss empirical facts which can be tested. For example, when we state that India achieved 7% GDP growth in the last fiscal, this is positive economics.

C. In normative economics, we deal with opinions and value judgments which cannot be empirically tested. For example, if we state that the USA should reduce its budget deficit, it is an opinion and therefore a matter of normative economics.

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