Chapter 1 Review quiz pg 10 Q1.

Positive economics is objective and fact based, while normative economics is subjective and value based. Positive economic statements do not have to be correct, but they must be able to be tested and proved or disproved. Normative economic statements are opinion based, so they cannot be proved or disproved.

While this distinction seems simple, it is not always easy to differentiate between the positive and the normative. Many widely-accepted statements that people hold as fact are actually value based.

For example, the statement, "government should provide basic healthcare to all citizens" is a normative economic statement. There is no way to prove whether government "should" provide healthcare; this statement is based on opinions about the role of government in individuals' lives, the importance of healthcare and who should pay for it.

The statement, "government-provided healthcare increases public expenditures" is a positive economic statement, because it can be proved or disproved by examining healthcare spending data in countries like Canada and Britain where the government provides healthcare.

Disagreements over public policies typically revolve around normative economic statements, and the disagreements persist because neither side can prove that it is correct or that its opponent is incorrect. A clear understanding of the difference between positive and normative economics should lead to better policy making, if policies are made based on facts (positive economics), not opinions (normative economics). Nonetheless, numerous policies on issues ranging from international trade to welfare are at least partially based on normative economics.

Q2. An economic model is adescription of some aspect of the economic world that

includes only those features that are needed for the purpose at hand. For example, an economic model of a cell-phone network might include features such as the prices of calls. Q3. The method used is to adjust the money supply, government spending,

Pg 9 Q1. A technique of reducing or forgoing one or more desirable outcomes in exchange for increasing or obtaining other desirable outcomes in order to maximize the total return or effectiveness under given circumstances. Q2. Rational choice is premised on a utilitarian belief that actions are based on a conscious evaluation of the utility of acting in a certain way. Smoking is wasting health and money, so no need to try cigrattes. I pad has less options than labtop, and no different than any smartphones, so no need to buy. Getting out with a friend will let me waste my spend and forget about my exam tomorrow, so no need to go out Q3. Giving up your favorite movie to study (in order to get good grades). The opportunity cost is the movie that has been forgone. >attending baseball training (in order to be a better player) instead of going to your favorite resturant when the best artiste would be performing; the resturant has been forgone/opportunity cost/best next alternative.

PG 7 Q1. those who both have the money and who are willing to spend it for the goods and services they want.