Economic Analysis: Positive vs Normative and Growth Factors

Positive Analysis

Testable claims about how the world works.

Normative Analysis

Value-based statements that cannot be tested.

Economists' Roles

Scientists explain; policy advisors improve the world.

Assumptions

Simplifications of complex realities for analysis.

Production Possibilities Frontier (PPF)

Shows maximum production combinations of two goods.

Efficiency in Production

No more of one good can be produced without loss.

Efficiency in Allocation

Resources allocated for maximum consumer satisfaction.

Ceteris Paribus

All other variables are held constant.

Opportunity Cost

Cost of the next best alternative forgone.

Economic Growth

Expansion of an economy's production capabilities.

Capital Accumulation

Increase in capital resources over time.

Technological Change

Development of new goods and production methods.

Specialization

Focus on producing specific goods for trade.

Comparative Advantage

Producers benefit from differing opportunity costs.

Absolute Advantage

Ability to produce more using the same resources.

Bow-shaped PPF

Indicates varying opportunity costs among producers.

Trade-off

Giving up one good to gain another.

Frontier Shift

Increased skills expand production capabilities.

Economic Efficiency

Requires both production and allocation efficiency.

Gains from Trade

Increased production and consumption through specialization.

Opportunity Cost Increase

Rising costs with increased production of goods.