One of the basic Economic problem is the problem of scarcity. We are talking about scarcity when there is not enough resources to satisfy all the demands of the people.
All economic goods are scarce (some more, some less). For this reason, in order to satisfy the needs of the people, all economic goods require an efficient way of allocation.
But there are also goods that do not require allocative mechanism. We call them free goods. Free goods are all goods which we do not need to pay for. Example are goods that we get from nature and are not produced by human.
Examples:
WATER is a free good as to the rivers, lakes, rain, etc., but economic good as to the water from bottle, from water supply system, etc..
AIR is a free good as to the air that you breath, but the oxygen used in the hospitals is an economic good.
Given a limited ability to obtain resources, both consumers and producers must choose between alternative products. Scarcity leads to choice and in theory it is assumed that economic units make rational decisions in a free market.
Positive and Normative Economics
Positive Economics - descriptions and explanations on the base of facts, causes, effects, objectives, calculations, tests, etc.
Example: Does an increase in taxes help the economic growth?
Normative Economics - it contains a value judgment on what the
economy ought to be like or what goals of public policy ought to
be; is subjective and value based.
Example: Do we really need to invest into the armed forces rather than to education?
Next lesson Importance of Studying Economics...
But, free goods are also limited to some extent. Moreover, free goods are becoming more and more economic (at least are closely related).
ReplyDeleteInteresting and, how to say, ticklish topic.