MODULE 1-Introduction in Economics.pdf

MODULE 1: INTRODUCTION IN ECONOMICS- Economic Thinking Why It Matters: Economic Thinking Why study economics? The idea of taking an economics course intimidates many students (or maybe just dull). This concern may simply stem from a misunderstanding of what econ...

MODULE 1: INTRODUCTION IN ECONOMICS- Economic Thinking Why It Matters: Economic Thinking Why study economics? The idea of taking an economics course intimidates many students (or maybe just dull). This concern may simply stem from a misunderstanding of what economics is all about. The study of money or the stock market is not involved, nor is it rocket science or a list of dull facts. Economics is basically just a collection of intriguing problems arranged around a fundamental truth: there aren't enough resources (such as money, land, or time) to meet everyone's needs and ambitions. This situation is known as scarcity in economics. No one ever has enough of the things they want, which has an impact on people as individuals, as nations, and as a species. Everyone needs to deal with scarcity on some level, and economists are curious about how people deal with it. Economics can be an incredibly potent tool if you comprehend how people act in the face of scarcity and learn to think like an economist. Individual economic agents, such as customers or companies, can have their behavior predicted; this is referred to as the micro level in economics. The behavior of an economy (or economies) as a whole, or what economists refer to as the macro level, can be predicted. You can have a deeper comprehension of the decisions you make in your own life and their effects. It's crucial to learn a few fundamental definitions and comprehend how they relate to one another in order to comprehend economics. Throughout the course, these ideas will be used a lot. The most fundamental level: Because of scarcity, not enough resources are available to meet all of the needs of people. Economics is the study of the decisions and trade-offs we make in light of the reality of scarcity. What we forgo when we choose one thing over another is known as opportunity cost. https://youtu.be/g9uUIUqhrSQ See this video for a quick introduction to economics. Throughout this course, you'll see a lot more videos like this one that are wrapped in "Watch It" boxes. They come highly recommended and are excellent resources for reviewing and improving your comprehension of the subjects being discussed. It is still beneficial to see the videos even if you believe you grasp the information from the reading. Managerial Economics Module 1 for BS Accountancy and BS Management Accounting by Exequiel Mendoza- 1 Perez Understanding Economics and Scarcity Learning Objectives Explain scarcity and its effects on the economy. Explain the production factors. Scarcity The time, capital, work, tools, land, and raw materials that we value are scarce resources. Simply put, there are never enough resources to satisfy all of our needs and wants. Scarcity is the name for this circumstance. Economics We have to make decisions when resources are scarce. Economics, once more, is the study of how people make decisions when resources are scarce. Individuals, families, businesses, or societies may decide these things. Let's think about a few choices we make when we have restricted resources. Consider what follows: 1. What courses are you enrolled in this semester? Are you the fortunate student who gets to take all the classes they desired with their top-choice professor at the optimal time and place? There's a good chance that you've had to compromise because of scarcity. There are only so many faculty members available to teach the classes, and there are only so many class times accessible each day. No one professor can be appointed Consider for a moment where you would live if you had unlimited resources. Most likely not where you now reside. Most likely, scarcity played a role in your decision to buy a home. Where did you decide to go? You might have opted to reside close to work or school due to your limited time. With the high demand for housing, some areas are more expensive than others, so you may have opted to pay more for a property that's close to everything or less for one that requires more travel time. You are compelled to select from the dwelling options that are offered at any given time because there is a limited supply in every place. The ability to pay must always be taken into consideration when making housing decisions. When choosing a place to reside, people must consider their financial situation, the variety of housing possibilities, their time constraints, and frequently additional limitations imposed by developers, landlords, city planners, and governmental rules. Managerial Economics Module 1 for BS Accountancy and BS Management Accounting by Exequiel Mendoza- 2 Perez https://youtu.be/yoVc_S_gd_0 In this course, you'll see a number of quick movies that break down complex economic ideas into their most basic forms. Watch them if you have the time! You'll learn the fundamentals and comprehend the texts thanks to them (which tend to cover the same information in more depth). Take into account the following main factors as you watch the video: Economics is the study of how people make decisions when resources are scarce. When the demand for goods and services outweighs the supply, there is scarcity. Individuals assess costs and advantages while making decisions in their own self- interest. Issues with Scarcity Every society must make decisions about how to use its resources at every level. Municipalities must decide whether to allocate a larger portion of their budget to the school system or to police and fire protection. Nations must decide whether to increase spending on environmental protection or national defense. There simply isn't enough money in the budget most of the time to cover everything. Given that there are never enough resources to meet all needs and desires, economics aids us in understanding the choices that people make as individuals, families, businesses, or nations. Economic Goods and Free Goods The majority of goods (and services) are scarce economic goods. When a good is scarce, demand would outweigh supply even if its price were to be zero. Economic good items have a favorable price on the market as a result of this shortage. In other words, customers must pay for them. What is a good that is not in short supply, for instance? the ocean contains water? Desert sand, perhaps? Any good that would be considered free if its price were zero is one whose supply exceeds its demand. This is because consumers could get anything they wanted for nothing. When it comes to free goods, air used to be considered abundant. Productive Resources Now that we know that resources are scarce, let's examine what exactly we mean when we talk about resources. There are four productive resources, often known as factors of production (resources must be able to generate something), which are as follows: Land: any type of natural resource, such as actual land, trees, plants, animals, the wind, the sun, the water, etc. Economic capital: everything produced with the intention of being used in the creation of goods and services. Keep in mind the contrast between economic capital Managerial Economics Module 1 for BS Accountancy and BS Management Accounting by Exequiel Mendoza- 3 Perez and financial capital, which is not productive (which is). Although money doesn't directly produce something, the equipment and tools it buys can. Labor: any form of human service, be it physical or mental. also known as human resources. Entrepreneurship: the capacity of someone (an entrepreneur) to plan the other production aspects, tolerate risk, and spot a profit opportunity. The following video goes into greater detail about productive resources and factors of production. https://youtu.be/0PgP0dXAGAE The link between money, goods, and services is explained by the economy's circular flow. It is frequently depicted using a circular flow model, similar to the one in Figure 1-1. The two main economic actors shown in the diagram are households and businesses. The product market and the factor/resource market are the two marketplaces in which these two players compete with one another. In the product market, households buy the products and services that companies are willing to sell. The roles are reversed in the resource market, where households sell their resources— land, labor, capital, and entrepreneurship—to businesses. Interdependence is a recurrent theme in economics, and the model amply illustrates it. The Concept of Opportunity Cost Opportunity Cost Because there are only so many resources available, every decision you make about how to use them involves deciding against alternative possibilities. The phrase "opportunity cost" is used by economists to describe what must be forgone in order to Managerial Economics Module 1 for BS Accountancy and BS Management Accounting by Exequiel Mendoza- 4 Perez achieve something sought. Every decision has an opportunity cost, which is a fundamental tenet of economics. The learning you miss if you sleep through your economics class—which is not advised—is the opportunity cost. You cannot spend your money on movies if you spend it on video games. You forfeit the chance to wed anyone else if you decide to only marry one individual. In other words, opportunity cost affects us all. Opportunity cost, or the value of the next best alternative, is the concept that the price of one thing is equal to the potential cost of doing or consuming something else. People always have to make trade-offs because they have to make decisions, which means they must give up some things they want in order to gain other things they want more. Watch this video to learn more about opportunity cost and to see some other instances. https://youtu.be/PSU-_n81QT0 Functions of an Economic System There are four main functions of an economic system, which are usually presented in the form of questions called economic problems. The answers will determine what type of system the society has:  What to produce?  How much to produce?  How to produce?  Who gets what? What to produce? The most essential job of an economy is to determine what commodities and services will be produced. And while demands are limitless, resources are not. As a result, society is confronted with the challenge of selection. One of the first things that society then has to figure out is what to produce. The provided resources are used to produce various items and services in order to satisfy the greatest number of consumer desires. Therefore, the community must choose between consumer and capital products. Things become a bit more complicated when talking about consumer goods since a choice must be made between products for general consumption and those for luxury. Managerial Economics Module 1 for BS Accountancy and BS Management Accounting by Exequiel Mendoza- 5 Perez How much to produce? Should production be at maximum potential or should there be some jobless people and wasted resources? How much to manufacture is governed by customer demand; unless someone purchases a particular item, manufacturing of that item would stop and a surplus would accumulate. How to produce? The next main issue to tackle is the issue of how to produce. In order to help figure out the answer, there are a few things that are taken into account before making a decision: Which commodities will be manufactured in public vs private sector? Which companies will be hired on to produce the commodities, and how many resources will be given to them to use for production? Which manufacturing methodologies will be adopted to ensure maximum output? The community should adopt a style of production organization that can adequately meet the greatest number of people's desires. Who gets what? The allocation of output in society is another critical role of an economic system. The following criteria must be examined in order to ensure an equitable and efficient allocation of production. How output is allocated between households and the government. The ideals of fairness and efficiency Types of Economic Systems Economic systems are classified into four types:  command economic system  market economic system  mixed economic system  traditional economic system  Each system has its advantages and disadvantages. Command Economic System The essential economic choices in command economies are made by the governments. The government decides which commodities will be produced and at which level and Managerial Economics Module 1 for BS Accountancy and BS Management Accounting by Exequiel Mendoza- 6 Perez at what price they will be sold. The aim of a command economy is to meet all needs of society and prioritize social welfare over profits. A command economy is an economic system in which the government makes all the economic decisions regarding the production, distribution, and consumption of goods and services. The advantages of a command economy or planned economy are that central planning allows the elimination of market failures, and in theory, better allocation of resources, prioritizing social needs over profits. Disadvantages, on the other hand, include limited consumer choice and a lack of incentives for innovation. Market Economic System Decision-making in a market economy is dictated by price fluctuations that happen between producers and consumers. Main characteristics of the market economy are private ownership, competition, and minimum to no government intervention. Also referred to as capitalism or laissez-faire economies, market economies are economic systems wherein market decisions are governed by price fluctuations that occur when sellers and consumers interact to set the sale of products. The amount individuals pay for items is determined by the law of supply and demand. One advantage to this type of economy is that buyers are able to locate what they want and purchase as many of the items as they want and can finance. An issue is that there is no pricing stability, and enterprises that are mishandled can fail. Mixed Economic System A mixed economy combines elements of command and market economies. All of the societies present-day have features of both systems and are frequently called mixed economies, despite the fact that almost all societies tend to lean toward one form of the economy more than the other. A mixed economy is an economy that combines parts of command and market economies A mixed economy aims to reduce the drawbacks of both systems while implementing the advantages. In a mixed economy, government can intervene in a key sectors like education, or healthcare while leaving other, less important from the perspective of a well-being of the society, sectors to private companies. The increasing government involvement also ensures that less competitive individuals are looked after. This eliminates one of the drawbacks of a market economy, which favors only the most successful or inventive. Traditional Economic System With traditional economies, historical norms and habits govern what and how things are created, distributed, and spent. Every individual within this society understands Managerial Economics Module 1 for BS Accountancy and BS Management Accounting by Exequiel Mendoza- 7 Perez their place in the greater group. Because occupations are handed down through generations, there is minimal change in professions over time. Traditional economic systems are often found in rural or remote areas where access to modern technology and infrastructure is limited. These systems tend to be self- sufficient and sustainable, but they may also be susceptible to external shocks and disruptions. A traditional economy is an economy where historical norms and habits govern what and how things are created, distributed, and spent While money can be used in traditional economies, but it is often limited to certain transactions and may not be the primary medium of exchange. In many traditional economies, bartering is more common than using money. Bartering is a system of exchange where goods or services are directly exchanged for other goods or services without the use of money. Microeconomics and Macroeconomics Learning Objectives Distinguish between macroeconomics and microeconomics Micro vs. Macro By now, it ought to be obvious that economics is a broad subject. Microeconomics, which focuses on the behaviors of specific agents within the economy, such as households, workers, and firms, and macroeconomics, which examines the economy as a whole, can be separated into two categories. It concentrates on big topics like inflation, trade balance, GDP, and unemployment. To understand why both microeconomic and macroeconomic perspectives are useful, consider the problem of studying a biological ecosystem like a lake. One person who sets out to study the lake might focus on specific topics: certain kinds of algae or plant life; the characteristics of particular fish or snails; or the trees surrounding the lake. Another person might take an overall view and instead consider the entire ecosystem of the lake from top to bottom: what eats what, how the system remains in balance, and what environmental stresses affect this balance. Both approaches are useful, and both researchers study the same lake, but the viewpoints are different. In a similar way, both microeconomics and macroeconomics study the same economy, but each has a different starting point, perspective, and focus. In economics, the health of the macroeconomy affects the micro decisions made by specific businesses; for instance, businesses will be more likely to hire people if the general economy is booming. In turn, how well the microeconomy functions ultimately rests on the choices made by specific people and companies. Managerial Economics Module 1 for BS Accountancy and BS Management Accounting by Exequiel Mendoza- 8 Perez Microeconomics What influences how individuals and households spend their budgets? Given their financial constraints, which mix of goods and services will best satisfy their needs and desires? How do individuals choose whether or not to work, and if they do, whether to work full- or part-time? How do people choose how much money to set aside for the future or whether to borrow money to spend more than they have? What determines which items a company will make and sell, and how many of each? What factors decide the prices a business will impose? What decides how a company will manufacture its goods? What factors into the number of employees it will hire? How will a company fund its operations? When will a business decide to grow, cut back, or perhaps shut down? The consumer behavior theory and the business theory are covered in the microeconomic section of this text. Macroeconomics What determines the degree of economic activity in a society or a nation? in particular, how many goods and services does it actually produce? What influences the employment situation in an economy? What elements influence the standard of living in a nation? What drives economic expansion or contraction? What causes businesses to either grow or decrease hiring? And finally, what supports long-term economic expansion? A number of criteria or objectives can be used to judge the macroeconomic health of an economy. The following are the key macroeconomic objectives: rise in the living standards minimal unemployment minimal inflation These objectives are pursued by macroeconomic policy through fiscal and monetary policy: The Classical versus Keynesian Economics There are two opposing schools of thought in Economics which may determine action in the economy in the endeavor to attain growth and development, the CLASSICAL of Adam Smith and KEYNESIAN of John Maynard Keynes. Adam Smith had been considered the “Father of Economics.” The publication of his book “The Wealth of Nations”, in 1776, brought the effective birth of economics as a separate discipline. Prior to the World Great Depression in the 1930’s, the view of Adam Smith prevailed. The ideal economy is self-regulating, hence the best thing the government can do to help the economy is to keep its hands off (no government interventions). He describes the market mechanism as an “invisible hand” that guides the economy to attain an equilibrium and at the same time full employment level. Managerial Economics Module 1 for BS Accountancy and BS Management Accounting by Exequiel Mendoza- 9 Perez  Keynes on the other hand contented that aggregate demand for goods might be insufficient during economic downturns, leading to unnecessarily high unemployment and losses of potential output. He therefore advocated active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle. Thus, a central conclusion of Keynesian Economics is that, in some situations, no strong automatic mechanism moves output and employment towards full employment levels, hence the government needs to redirect the economy through its government policies Monetary policy The central bank of a country implements monetary policy, which includes measures affecting bank lending, interest rates, and financial capital markets. This is the Federal Reserve in the United States and Bangko Sentral ng Pilipinas (BSP) in the Philippines. Fiscal policy Government spending and taxation are governed by the legislative branch of a country. The Congress and the executive branch of government (Senate) in the Philippines are responsible for establishing the national budget. which involves government spending and taxes, is determined by a nation’s legislative body. For the Philippines, this is the Congress and the executive branch, which establishes the federal budget. The following video explains once more the distinctions between macroeconomics and microeconomics as well as their separate focuses.: https://youtu.be/w8tUIq7Blsg Introduction to the Production Possibilities Frontier What you’ll learn to do: show society’s trade-offs by utilizing a production possibilities frontier (or curve) (or curve) President Lyndon Johnson of the United States launched two significant, expensive projects in the 1960s: starting the "War on Poverty" and intensifying the Vietnam War. He was unable to fully address both difficulties and thus overlooked what economists refer to as the production possibilities frontier, which is why the results were not as nice as he had hoped (also called the production possibilities curve). In short, civilizations must make trade-offs because they have a finite amount of resources. The production possibilities frontier (abbreviated PPF) is a model of the economy that displays all possible combinations of goods, services, and resources that a society could generate, given the resources at its disposal. Managerial Economics Module 1 for BS Accountancy and BS Management Accounting by Exequiel Mendoza- 10 Perez The Production Possibilities Frontier Learning Objectives  Explain the production possibilities frontier The same way that people cannot have everything they desire and must instead make decisions, neither can society as a whole. The production possibilities frontier (PPF) model is used by economists to illustrate the limitations society encounters when determining what to produce. You'll notice similarities between individual decisions and social choices as you read this section. Focus on the commonalities for the time being because there are more of them than differences. While people have time and money restrictions, society has resource limitations (e.g. labor, land, capital, raw materials, etc.). The quantity of products and services that society can produce is constrained since it has finite resources at any one time. In other words, there are fewer items available since there are fewer resources. Let's say a civilization wants two things: education and health care. The production possibilities border in Figure 1 serves as an illustration of this circumstance. The vertical axis, or y, represents health care, and the horizontal axis, or x, represents education. What is the origin of the PPF? It results from the two items' production procedures and the constrained resources available for usage in those procedures. Consider a scenario in which a single teacher may instruct 25 students. A maximum of 250 children can receive an education in a society with 10 teachers. Using the Managerial Economics Module 1 for BS Accountancy and BS Management Accounting by Exequiel Mendoza- 11 Perez current educational procedures, we would say that one teacher could "create" the educational needs of 25 students. Imagine a civilization where providing healthcare was the sole focus of its resources. It is undoubtedly one way a society may allocate its resources, but there would be none left over for education. Figure 1's option is depicted at point A. Similar to point F, society may devote all of its resources to providing healthcare and none to providing education. As an alternative, society could decide to generate any set of health and education services that are depicted on the production possibilities frontier. In essence, the production possibilities frontier serves the same purpose for society as a consumer's financial limitations serve for them individually. Any mix of the two products on or inside the PPF may be chosen by society. It lacks the resources to create outside the PPF, though. Most crucially, the tradeoff between healthcare and education is amply illustrated by the production possibilities frontier. Let's say society has decided to function at point B and is thinking about producing additional schooling. It is impossible for society to fund more education without compromising some health care because the PPF slopes lower from left to right. That is the trade-off this society is forced to make. The trade- off this society must make is that. Let's say it thinks about going from point B to point C. What would the opportunity cost of pursuing further education be? The healthcare that society would have to forgo would be the opportunity cost. Do you recall how Charlie would combine purchases of burgers and bus tickets to stay within his means? In essence, the production possibilities frontier serves the same purpose for society as Charlie's financial restrictions do. The two items are available in any combination on or within the PPF, but society lacks the resources to create outside the PPF. The slope of the production possibilities frontier displays the potential cost, just like Charlie's budget constraint did. To keep the contrasts between these policies clear, remember that the term monetary relates to money, whereas the term fiscal relates to government revenue or taxes. These are the primary resources at the government's disposal. Americans frequently believe that the government can solve any economic issues we face, but how realistic is this belief? These are only a few of the topics that will be covered in this course's later chapters. Review the production options frontier for this movie on the made-up "Econ Island." https://youtu.be/nsQi2ipSP2c?t=9 Watch this video to get a different justification for the PPF's curve. https://youtu.be/Nw0ugthoc8o?t=7 Differences between a Budget Constraint and a PPF We can now discuss the contrasts between society's PPF and a person's financial limitations. A consumer's ability to combine diverse combinations of goods and services within their fixed budget is indicated by a budget restriction. The combinations of commodities and services that a civilization can generate with its finite resources are Managerial Economics Module 1 for BS Accountancy and BS Management Accounting by Exequiel Mendoza- 12 Perez depicted by a production possibilities frontier. The production possibilities frontier (PPF) will have far greater numbers on the axes than an individual's budget restriction because it is looking at society's choice. This is the first difference between a budget constraint and a PPF. The most significant distinction between the two graphs is that although a production possibilities curve is often bent outwards, or concave towards the origin, a budget restriction is a straight line. The discrepancy can be explained quite simply by noting that the slope of a budget line is determined by the ratio of the costs of the two items or services. Prices remain constant regardless of how many units of any commodity or service a customer purchases. The cost to society of producing one good or service compared to the other good or service is the slope of a PPF, in contrast. The relative costs alter when society redistributes resources from one good to another, which likewise affects the PPF's slope. Consider point A at the upper left corner of the PPF to begin understanding why it is curved. Assume we only have access to two types of resources—doctors and teachers—in the scenario depicted in Figure 1 (which is repeated below). At point A, there are no resources left for education because all the available ones—all the instructors and doctors—are being used to provide healthcare. Imagine that the teachers are assisting the doctors as best they can while they practice medicine. This scenario would be absurd and outrageous. In other words, children are missing school but still visiting the doctor every day, regardless of whether they are ill. Despite not having a high school or college degree, people are getting cosmetic surgery on every area of their bodies. Imagine switching part of these funds from health care to education, putting the economy at point B rather than point A. What kind of resources will go toward creating education? It makes little sense for doctors to transfer careers because they are good at medicine but not so much at teaching. Nevertheless, teachers excel at teaching and struggle in the medical field. After all, that was not their intended purpose for training. So, shifting instructors from healthcare to education makes sense. Because the teachers weren't highly skilled in providing healthcare, society doesn't lose much when they move. But because it is what teachers are trained to do, there is a significant amount of education obtained. This indicates that while there is a modest decline in healthcare while there is a significant increase in education from point A to point B. Graphically, the slope—which is the ratio of climb to run—is flat since the increase is minor and the run is large. In other words, education has a cheap opportunity cost compared to healthcare. Graph demonstrating how a society must frequently prioritize where to invest its limited resources. The y-axis on this graph is labeled "Healthcare," and the x-axis is labeled "Education." Managerial Economics Module 1 for BS Accountancy and BS Management Accounting by Exequiel Mendoza- 13 Perez Figure 1 (shown again). an educational and medical production possibilities frontier. Moving doctors from teaching to healthcare would result in a huge gain for healthcare and a moderate loss for education if we began at the opposite end of the PPF at point F and went to point D. (the same logic we used above). In other words, the PPF would have a steep slope from point F to point D, and education would have a significant opportunity cost relative to healthcare. In general, the cost of production rises compared to the cost of creating other commodities or services as society produces more and more of one good or service. Hence, the slope of a PPF starts out flat and gradually steepens. Of course, there are more than two goods and services and more resources than just labor available in the actual world, but the overall principle is still valid. There is an alternative way to consider this. Budget funds are the sole limited resource available to customers. We are merely spending money on different products as we choose to buy more of one good and less of another, but every dollar has the same value when it comes to buying anything. There are numerous limited resources available to civilization. Doctors and teachers were the two resources in the previous straightforward example, and each resource is more effective at one task than the other. In other words, each resource has a varied value for manufacturing various goods. The basic rule is that while only one scarce resource is being allocated, the trade-off (such as a budget line) will remain constant, but when there are many scarce resources, the trade-off will become progressively expensive (e.g. the PPF). Managerial Economics Module 1 for BS Accountancy and BS Management Accounting by Exequiel Mendoza- 14 Perez Law of Diminishing Returns and the Curved Shape of the PPF If you've ever stayed up all night studying, you're definitely aware of the law of diminishing returns, which states that after a certain point, each extra hour of study results in less progress. The lesson is not that society is likely to adopt a radical decision like not funding health care at point F or education at point A. The key takeaway is that the benefits of investing somewhat more money in education depend on how much is already being spent. Given that there are now extremely little resources dedicated to education, adding more resources could result in comparatively significant advances. On the other hand, if a lot of resources are already invested in education, adding more will result in comparatively lower advantages. The law of diminishing returns is the name given to this pattern since it occurs so frequently. According to this law, the marginal advantage from increasing increments of resources will decrease as they are allocated to a certain goal. For instance, when a government spends a specific amount more on crime reduction after spending virtually little on it, the improvements in crime reduction may be rather significant. However, subsequent increases usually lead to comparatively modest decreases in crime, and it would be extremely expensive to provide enough police and security to completely eradicate crime. The production possibilities frontier's curve shows that while initial gains are rather substantial when more resources are dedicated to education, such gains generally diminish over time, moving from left to right along the horizontal axis. Similar to how, moving from bottom to top on the vertical axis, benefits are first rather high but again eventually decline as more resources are devoted to health care. The law of diminishing returns causes the production possibilities frontier to curve outward. Positive and Normative Statements Learning Objectives Distinguish between positive and normative statements Economists participate in two distinct, but connected activities. They carry out study on economic topics, for instance, to establish cause and effect. Why, for instance, did unemployment spike in 2008 and 2009? Also, economists offer policy suggestions. What should the federal government do, for instance, in reaction to the rising unemployment rate? The first kind of activity is economic science, which uses theories and data to try to explain how the world, or at least the economy, functions. The findings are referred to as positive assertions, and the reasoning is known as positive reasoning. Since the GDP is the basis for determining employment levels, it is reasonable to conclude that the rise in unemployment during that time period was caused by the economy's slowdown. The Great Recession is the name given to this slowdown. The second kind of work is more arbitrary and invariably depends on the researcher's moral principles. The results are referred to as normative assertions, and the process is Managerial Economics Module 1 for BS Accountancy and BS Management Accounting by Exequiel Mendoza- 15 Perez known as normative reasoning. A recommendation for policy would be that since unemployed people are not receiving a paycheck, the government should endeavor to increase demand in the economy so that unemployed people can find new employment. A contrasting policy proposal might be that the government should refrain from trying to stimulate demand because doing so could result in running a greater federal budget deficit, which would be repaid by future generations through higher taxes. Which of these suggestions should you follow? That is dependent upon your personal ideals. Positive Statements Positive statements are objective, as is positive reasoning more generally. They can be tested as a result. They can be divided into two groups. The first is a claim that can be empirically checked by looking at the facts on unemployment and GDP, such as "a decline in GDP causes unemployment." The second category is a statement of fact, which may be proven to be true or false, like "It's raining" or "Microsoft is the world's largest manufacturer of computer operating systems." Like hypotheses, statements of fact can be proven to be true or false. Positive statements include assertions of fact and hypotheses. And keep in mind that affirmative claims are still considered positive as long as they can be tested. Normative Statements Although there is frequently debate over constructive assertions, this can finally be settled through research. Nonetheless, there are some claims that can never be proven or disproven via study. Any remark that expresses an opinion about anything is normative. No one can "prove" that a remark is true or false; such a judgment is the speaker's opinion. Following are a few instances of normative economic statements: We ought to support those who are less fortunate more. The typical American should increase their retirement savings. Profits for corporations are too high. These claims cannot be challenged by presenting evidence that they are false because they are predicated on the person making them. As everyone has different values, normative statements frequently create argumentation. An economist with values that lead them to believe we should help the poor more will disagree with one with values that believe we shouldn't. These two economists will continue to dispute unless one persuades the other to adopt a different set of values because there is no test for these values. Many of the conflicts among economists are caused by these variations in values and are therefore unlikely to be settled. People frequently convey an argument as positive in order to persuade an audience, even while it contains normative components. Newspaper op-eds and other opinion- Managerial Economics Module 1 for BS Accountancy and BS Management Accounting by Exequiel Mendoza- 16 Perez based media are excellent examples of this. To be able to distinguish between normative and positive assertions is crucial. Review the differences between positive and normative analysis by watching this brief video. https://youtu.be/AV_p_QntywA Discussion: Is Economics a Science? Comment on at least TWO additional posts after responding to each of the following questions in a post with no fewer than 200 words. Make an initial introduction to your peers. From where do you hail? What activities do you like? What academic objectives do you have, and why are you enrolled in this course? What area of economics are you most eager to learn about? Is economics an academic field? If not, why not? Include the meanings of "science" and "economics" as you understand them in your response and explanation. Assignment: Guns or Butter? You will exhibit your aptitude for drawing a straightforward production possibilities curve in this assignment using the information on the quantity of one input (labor) and the amount of labor necessary to generate each of two outputs (guns and butter). As the slope of the PPC, you should also be able to determine the opportunity cost of one good in relation to the other. In order to demonstrate why it is impossible to construct combinations of the two items outside the PPC, you will discuss your study of the data. Butter or Guns? Imagine a country with 12 total units of labor that can be employed to make either butter or firearms. While it takes 6 units of labor to make one rifle, it only takes 2 units of labor to make one pound of butter. Justify the existence of scarcity in this economy. Make use of the data to support your arguments. How many firearms may be produced at one time? The most butter that can be produced is how much? Create a production possibility curve for the country. What are the guns opportunity costs in this country? Justify the country's inability to generate both 3 weapons and 4 kinds of butter. Managerial Economics Module 1 for BS Accountancy and BS Management Accounting by Exequiel Mendoza- 17 Perez