Question

Indicate whether each of the following statements is true or false. If the statement is false, change it to make it true. a. Positive analysis imposes the value judgments of one individual on the decisions of others. b. Rational self-interest is the same thing as selfishness. c. An economic good is scarce if it has a positive price. d. An cconomic bad is an item that has a positive price. c. A resource is an ingredient used to make factors of production.

Short answer

a. Positive analysis imposes value judgments on the decisions of others. b. Rational self-interest is the same as selfishness. c. An economic good is scarce if it has a non-zero opportunity cost. d. An economic bad is an item that has a positive price. e. A factor of production is an ingredient used as a resource in creating goods and services. Answer: c. An economic good is scarce if it has a non-zero opportunity cost.

Step-by-step solution

1. Evaluate statement a. regarding positive analysis

Positive analysis is an objective approach to study economic behavior, and it is based on facts without imposing value judgments. In contrast, normative analysis incorporates the value judgments. Statement a. claims that positive analysis imposes value judgments, which is false. To make the statement true, we revise it to: "Positive analysis is an objective approach to study economic behavior without imposing value judgments on the decisions of others."

2. Evaluate statement b. about rational self-interest and selfishness

Rational self-interest is when individuals make decisions considering the costs and benefits, aiming to maximize their welfare. Selfishness, on the other hand, refers to prioritizing personal gain over others' interests. Statement b. asserts that rational self-interest is the same as selfishness, which is false. A correct version of the statement is: "Rational self-interest is when individuals make decisions considering the costs and benefits, aiming to maximize their welfare, and it doesn't necessarily mean that they are selfish."

3. Evaluate statement c. about economic goods and scarcity

An economic good has a non-zero opportunity cost, meaning it is scarce because it has alternative uses. While it is true that scarcity often results in a positive price, economic goods can also exist with zero price in cases of market failure or externalities. So, statement c. is false. A correct version of the statement is: "An economic good is scarce if it has a non-zero opportunity cost."

4. Evaluate statement d. about economic bads and positive price

An economic bad is an item that people are willing to pay to get rid of, such as pollution or waste. Statement d. is false because an economic bad usually has a negative price. A correct version of the statement is: "An economic bad is an item that has a negative price."

5. Evaluate statement e. about resources and factors of production

Resources are inputs such as labor, land, and capital needed to produce goods and services. Factors of production refer to the broad categories of resources. Statement e. is false because it confuses the terms "resources" and "factors of production". A correct version of the statement is: "A resource is an ingredient used as a factor of production in creating goods and services."

Key concepts

Rational Self-Interest

Rational self-interest is a fundamental premise in economics that assumes individuals make decisions aimed at maximizing their personal satisfaction or gain. This concept emphasizes that humans are motivated by their own wants and needs, analysing the costs and benefits before acting.

It's important not to confuse rational self-interest with selfishness. While selfishness implies a disregard for the well-being of others, rational self-interest simply means that individuals attempt to achieve the best outcome for themselves, which can include mutually beneficial transactions. For example, a consumer opting to purchase an energy-efficient appliance is acting in rational self-interest—the purchase benefits the consumer through cost savings while also being good for the environment.

When individuals operate based on rational self-interest, it leads to resource allocation in a manner that can, under the right market conditions, lead to economic efficiency. This can be seen in basic supply and demand interactions where consumers and producers make decisions based on their own interests.

Economic Goods Scarcity

Scarcity is a fundamental concept in economics that describes the basic economic problem: that resources are limited while human wants are infinite. As a result, economic goods, which can be anything from raw materials to services, are considered scarce if they have a non-zero opportunity cost. This means that choosing to allocate resources for the production of one good requires sacrificing the production of another.

An economic good's scarcity often leads to a positive price tag, reflecting the need to ration its use among competing wants. However, a positive price does not necessarily confirm scarcity. Some goods might be available at no cost due to market failures, public provision, or externalities, though they are still scarce from the perspective of forsaken alternatives.

Understanding scarcity is crucial for understanding economic decision-making. Producers must decide what to produce with limited resources, while consumers must choose how best to spend their income on a range of goods and services.

Economic Bads

On the flip side of economic goods are 'economic bads'—items that are disfavored and that people generally want to eliminate or are willing to pay to dispose of. Common examples include pollution, trash, or damaging by-products from production processes.

Contrary to economic goods, which typically have a positive price due to their desirability and scarcity, economic bads are often characterized by a negative price. Individuals and organizations might pay others to remove or mitigate these bads, and the cost associated reflects the disutility or harm they cause.

Understanding economic bads is necessary when considering how economies should allocate resources not just for production but also for maintenance and sustainability. Environmental regulations, waste management, and pollution control mechanisms can be indicators of how societies deal with economic bads, aiming for minimization and proper management.