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a. TANSTAAFL: This acronym was used by Robert Heinlein e in his Novel "The Moon is a Harsh Mistress" which is a pretty good read along with some of his other books (eg Stranger in a Strange Land). It stands for There Ain't No Such Thing As A Free Lunch. Nobel prize winning economist Milton Friedman also published a book with a similar title (being a good academic he changed the word ain't to is). This phrase is a popular way to express one of the most important economic concepts there is (hint: opportunity cost). What does the phrase mean? Discuss with examples, anecdotes, and comments being sure to focus on the opportunity cost aspects...please note that from an opportunity cost perspective it does NOT mean that someone else pays but rather looks at the idea of trade offs in decision making. So an opportunity cost is what you could have done with the resource used up from a choice. This is important again when we look at gains from trade and can also be discussed in a production possibility framework. b. Develop a discussion of the difference between positive and normative economics? Create a definition through examples. c. Develop a discussion of the cost-benefit principle as it should apply to a decision that you have made in the past or one that you expect to make in the future.
a. ''There's no such thing as a free lunch'' is an expression which conveys the idea that things appearing free always have some cost paid by somebody, or that nothing in life is truly free. It is related to the concept of opportunity cost which represents the potential benefits an individual, investor, or business misses out on when choosing one alternative over another. the fact that the vast majority of goods are scarce and not free leads directly to trade offs. Everyone faces those trade offs including goverments. If the government of a country decides to spend more on war, it will have less to spend on healthcare or education. If it decides to spend more on war and not cut spending on any welfare measures then it will increase budget deficit or reduce the budget surplus proving that nothing is free.
b. Positive economics is objective and fact-based where the statements are precise, descriptive, and clearly measurable. these statements can be measured against tangible evidence or historical instances. There are no instances of approval-disapproval in positive economics. It relies on objective data analysis, relevant facts and associated figures. It attempts to establish any cause and effect relationships or behavioral associations which can help ascertain and test the development of economic theories. An example of positive economics statement is as follows, '' Government-provided healthcare increases public expenditures.'' this statement is fact based and its validity can be proven or disproven by studying healthcare spending where government provide healthcare.
Normative economics is a school of thought which believes that economics as a subject should pass value statements, judgements and opinions on economic policies, statements and projects. It aims to determine what should happen or what ought to be. It is subjective and value based, originating from personal perspectives or opinions involved in decision making process. An example of normative economic statement is, ''The government should provide basic healthcare to all citizens''. As we can see, this statement is value-based, rooted in personal perspective and satisfies the requirement of what ''shpuld'' be. These statements often can not be tested.
c. Cost- benefit principle says that one should take an action if and oinly if the extra benefit from taking it is greater than the extra cost. It is mainly an accounting concept that states that the benefits of an accounting system that help produce financial reports andstatements should always outweight the cost associated with it. for example, suppose I want to buy a video game which costs $70 in thenearest store, but costs $50 in another store that is 10 miles away from where Ilive. In this case according to cost benefit principle I should go the other store that is selling the game for $50 only if the journey costs less than $20.
