An Essay
...matical formulae. Models help to explain what has occurred, and predict what might happen in the future. E.g., PPC; Circular Flow of Income. Positive and Normative Statements Positive Economic statements are Factual statements, which can be tested because they are based only on logical deductions from a model or set of data. E.g., “If the government increases the sales tax on tobacco, people will purchase less packets of cigarettes.” Normative Economic statements are based on opinions, and analyse the outcomes of economic behaviour as either ‘good’ or ‘bad’. E.g., “The government should increase the tax on cigarettes.” Opportunity Cost Opportunity cost is the cost of the best alternative foregone. PPC Model Assumes fixed quantity of resources and a constant level of technology Machinery A – All resources are devoted to the production of food so 30 units of machinery could be produced, and 0 un...