Lecture 2 - Economic systems (01/10/25)

What is the difference between positive and normative economics?

Positive economics is based on facts and proof, while normative economics is based on opinions and value judgments.

What does microeconomics focus on?

Microeconomics focuses on individual, firm, household, and government interactions.

What is the main focus of macroeconomics?

Macroeconomics focuses on the whole economy or the aggregate economy, including total output, demand, and supply.

What is opportunity cost?

Opportunity cost is the cost of an activity in terms of the best alternative forgone.

What does economic efficiency mean?

Economic efficiency is a situation where each good is produced at minimum cost while maximizing benefits for individuals and firms.

What is the purpose of the production possibility curve?

The production possibility curve illustrates the maximum feasible output combinations of two goods that can be produced with available resources.

What are the components of the circular flow of income?

The circular flow of income consists of the goods market and the income market, where money flows from consumer expenditure to firms.

What characterizes a command economy?

A command economy is state-oriented, where the state allocates resources through planning mechanisms, characterized by choice and productivity issues.

What is a mixed economy?

A mixed economy is market-dominant with limited state involvement, allowing individual economic freedom while addressing issues of equality.

What are the advantages of a free market economy?

Advantages include transmitting information between buyers and sellers, reduced bureaucracy, incentives for efficiency, and responsiveness to consumers.

What are the disadvantages of a free market economy?

Disadvantages include limited competition, inequality, issues with information asymmetry, and poor responses to economic shocks.

What is the price mechanism?

The price mechanism involves the interaction between demand and supply, where shortages lead to price increases and surpluses lead to price decreases.

What challenges are associated with economic reasoning?

Economic reasoning faces difficulties conducting controlled experiments and predicting human behavior.