1.What is scarcity? Why is scarcity central to the study of economics? 2.Why doe
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Question
1.What is scarcity? Why is scarcity central to the study of economics?
2.Why does scarcity imply that every society and individual must face trade-offs?
3.What is the difference between efficiency and equity? Why do government policymakers often face
a trade-off between efficiency and equity?
4.Why do economists use models?
5.What are the five steps economists use to arrive at a useful economic model? Describe each step in detail.
6.What is the difference between normative analysis and positive analysis? Is economics concerned
mainly with normative or positive analysis? Explain.
7.Suppose an economist develops an economic model and finds that “it works great in theory, but it
fails in practice.” What should the economist do?
8.What are the differences between graphs using one variable, two variables, and more than two
variables?
9.What is the use of positive and negative relationships in determining cause and effect?
Explanation / Answer
Ans(1): Scarcity is the basic economic problem which shows unlimited human wants over limited resources. Scarcity is central to the study of economics because it finds different methods to have fuller utilisation of resources so that unlimited wants can be fulfilled with limited resources.
(2): Because resources are less to fulfill all the human wants, one desire can be fulfilled by sacrificing the another desire.
(3): Efficiency deals with the optimal production and allocation of resources from given factors of production whereas equity deals how the resources to be distributed among the society. Govt always face tradeoff because resources are limited and human needs are unlimited. Its very difficult to fulfill all needs.
(4): Economists use models to show complexed process in a simplified manner.
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