Foundations of Economics

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What is the primary focus of economics?

The primary focus of economics is how individuals and societies allocate scarce resources to satisfy unlimited wants.

What is scarcity in economics?

Scarcity refers to the limited nature of resources, meaning there are not enough resources to meet all human wants.

Why is scarcity a fundamental issue in economics?

Because it forces individuals and societies to make choices about how to allocate resources efficiently.

What are opportunity costs?

Opportunity costs refer to the value of the next best alternative that is forgone when making a decision.

What are the three basic economic questions every society must answer?

1. What to produce? 2. How to produce? 3. For whom to produce?

What does 'resource allocation' mean in economics?

Resource allocation refers to how scarce resources are distributed for the production of goods and services in an economy.

What is a model in economics?

An economic model is a simplified representation of reality used to understand and predict economic phenomena.

How do economic models help in understanding the world?

They provide frameworks for analyzing relationships between different economic variables and predicting outcomes.

What is the method of economics?

The method of economics involves defining questions, developing models, and using data to test hypotheses and make predictions.

How does positive economics differ from normative economics?

Positive economics deals with what is, based on data and facts, while normative economics involves value judgments about what ought to be.

What is the significance of economic thought?

Economic thought outlines the evolution of ideas and theories about how economies function, influencing policy and practice.

Who is considered the 'father of modern economics'?

Adam Smith is considered the 'father of modern economics,' known for his work "The Wealth of Nations."

What role did Adam Smith play in economic thought?

Adam Smith introduced concepts such as the 'invisible hand' and specialization, which laid the groundwork for classical economics.

What is the 'invisible hand' theory?

The 'invisible hand' is a metaphor for the self-regulating nature of the marketplace, guiding individuals to unintentionally benefit society.

What is the historical significance of 'The Wealth of Nations'?

Published in 1776, it systematically addressed the dynamics of wealth creation and introduced ideas foundational to modern economic theory.