ASSIGNMENT

Assignment



Assignment

ECONOMIC METHODOLOGY

1. We specify this functional relationship is dependent on Ceteris Paribus because we only want to concentrate on one variable at a time. If another variable also changes, it may prevent the prediction from coming true. For example, if the price falls, there is also a report that the product is harmful to health, and then we will not want to buy more of that product. Therefore it is dependent on Ceteris Paribus that means all else equal. 2. The option “the government should try to prevent house prices from raising so much” is the normative statement as the normative economics implies what should happen in the economy. It explains what should happen in different economic systems.

3. The command economies of the communist countries differ from the market economies in many ways. Among them the central planning of what is to be produced by the country. Another way that differ command economy of communist countries from market economies is the state ownership of all production and distribution. 4. The command economies should produce fewer consumer goods so that more resources can be devoted to the production of capital goods in order to increase the economic growth.

5. The possible advantages of a command economy over a market economy are: Through a command economy, a more even distribution of income and wealth can be achieved. Similarly, consumers are not exploited by unscrupulous businesses as it is a common practice in the market economy.

6. The shortages occur in the command economies can have several reasons. It may occur either because the planners underestimated the consumer demand or the politicians decided not to produce enough goods that they considered not necessary.

7. The unsold surpluses occur in the command economies because planners overestimated the consumers demand.

8. The quality of goods in the command economies was often inferior to those in the market economies because not enough resources devoted to research and development of new products that is a planning decision. Similarly, because command economies lack competition due to which products are not given attention in terms of their quality.

9. An increase in demand leads to an increase in the production of good because price will raise that makes production of the good more profitable. Due to this more firms will enter the market.

10. When a particular product is more available in the market, its price will naturally go down as the increased supply will cause the price to go down. Therefore, at the lower price more people will want to buy the good.

11. If a shortage of a good develops, the price mechanism will decide who will get this good. Because a shortage of a good will raises the price and only those who are prepared or able to pay the higher price will get it.

12. There can be different cases in which one market will cause a change in another market like case of substitutes and compliments. Such as there are two substitutes A & ...