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Write a short note on the followings with the suitable examples


Opportunity Cost :- Unlike most costs discussed in economics, an opportunity cost is not
always a number. The opportunity cost of any action is simply the next best alternative to that
action - or put more simply, "What you would have done if you didn't make the choice that
you did".

Example:-I have a number of alternatives of how to spend my Friday night: I can go to the movies, I
can stay home and watch the baseball game on TV, or go out for coffee with friends. If I choose to go
to the movies, my opportunity cost of that action is what I would have chose if I had not gone to the
movies - either watching the baseball game or going out for coffee with friends. Note that an
opportunity cost only considers the next best alternative to an action, not the entire set of

2. MicroEconomics :-micro economics deals with the behavior of individual economics

units .these units include consumers, workers, investors, owners of land , business firms
in fact ,any individuals or entity that plays a role in the functioning of our economy .
microeconomics explains how and why these units make economic decision.
Example:- it explains how consumers make purchasing decision and how their choice are
affected by changing price and incomes. It explains how firms decide how many workers to hire
and how workers decide where to work and how much work to do.

3. Macro Economics :-macro economics deals with aggregate economic quantity , such
that as the level and growth rate of national output , interest rates , unemployment , and
inflation . but the boundary between macroeconomics and microeconomics gas become
less and less distinct in recent years. The reason is that macroeconomics also involves
the analysis of markets.
Example:- the aggregate market for goods and service, labor , and corporate bonds. To
understand how these aggregate markets operate ,we must first understand the behavior of the
firms , consumers, workers, investors who constitute them .

4. Positive Statement
Positive statements are objective statements that can be tested, amended or
rejected by referring to the available evidence. Positive economics deals
with objective explanation and the testing and rejection of theories. For example:

A fall in incomes will lead to a rise in demand for own-label supermarket foods

If the government raises the tax on beer, this will lead to a fall in profits of the

The rising price of crude oil on world markets will lead to an increase in cycling to

A reduction in income tax will improve the incentives of the unemployed to find

A rise in average temperatures will increase the demand for sun screen products.

Higher interest rates will reduce house prices

5. Normative Statement
Normative statements are subjective statements rather than objective statements
i.e. they carry value judgments. For example:

Pollution is the most serious economic problem

Unemployment is more harmful than inflation

The congestion charge for drivers of petrol-guzzling cars should increase to 25

The government should increase the minimum wage to 6 per hour to reduce

The government is right to introduce a ban on smoking in public places.

The retirement age should be raised to 70 to combat the effects of our ageing

6. Potential Demand :- a situation where there is no demand as yet for a

product but there is money to buy it.

Example:-Though there is no interest in our product in Saudi Arabia as
yet, there is considerable potential demand.

7. Mixed Economy :-mixed economy is an economic system which combines in itself

the feature of capitalism and that of the socialism.
mixed economy has an important public sector, i.e. a number of industries which are
owned and manage by the state. The state is not the all pervasive owner f industries of
production. Private enterprise is allowed and even encouraged to operate a large
number of industries and to own the various means of production thus the economic
system the public and private sectors exit side by side .
8. Invisible Hands :- Every individual necessarily labours to render the
annual revenue of the society as great as he can. He generally neither
intends to promote the public interest, nor knows how much he is
promoting it ... He intends only his own gain, and he is in this, as in
many other cases, led by an invisible hand to promote an end which was
no part of his intention. Nor is it always the worse for society that it was
no part of his intention. By pursuing his own interest he frequently
promotes that of the society more effectually than when he really intends
to promote it. I have never known much good done by those who
affected to trade for the public good."
Example:- Coined by classical economist Adam Smith in The Wealth of Nations, the
invisible hand refers to an unseen mechanism that maintains equilibrium between the
supply and demand of resources. Smith states that the invisible hand functions by virtue of
the innate inclination among free market participants to maximize their well-being. As market
participants compete, driven by their own needs and wants, they involuntarily benefit society
at large


Free Economy.:- A market economy is where economic decisions are made by the free
market. That means production of goods and services are regulated by the laws
of supply and demand. Producers sell their goods and services at the highest possible price
that consumers are willing and able to pay. Workers also bid their services at the highest
possible wages that their skills allow.