Test: Nature And Scope Of Business- 1 - CA Foundation MCQ

Economics as a science: Like science, economics is also based on the systematic knowledge which is based on facts and data.

Like any other science, it has its own scientific laws and theories which can be measured and verified and proved. Also, it has its own methodology. 

Normative economics deals with what ought to be or how the economic problems should be solved.
It discusses what the desirable things are and how they should be realized. Thus it is suggestive in nature. 

Positive statements study the facts of life i.e. it deals with 'things as they are'. It deals with what are the economic problems and how are they actually solved. It explains the cause and effect relationship and avoids giving suggestions.

Both the statements (ii) and (iii) are giving suggestions but (i) and (iv) are stating a fact and it not suggesting anything.

Thus option (i) and (iv) are positive statements. 

The central problems like what to produce, how to produce etc. rises due to the relationship between wants and resources. As it is very well known that human wants are unlimited and if scarce resources have alternative uses, then many questions related to production can be put forward which will act as a problems in the economy.

The problem of choice or the problem relating to allocation of resources deals with 3 aspects:

1) What to produce -  Resources are to be used for producing what goods and services.

2) How to produce - What methods are to be used for the production.

3) For whom to produce - Who will utilize the goods and services.

The problem of 'what to produce' deals with the production of necessary goods that have demand in the economy which can be evenly distributed so that social as well as economic stability is maintained in the economy

Microeconomics deals with prices and production in single markets. The economic behaviour of an individual unit and the interaction between different markets, but leaves the study of economy-wide aggregates to macroeconomics.

Macro economics is a field of economics which deals with the economy as a whole. The objective of the macro economics is to maximize the welfare of an economy. It includes principles and policies relating to full employment of available resources as well as the growth of resources.

Micro economics deals with the individual approach of various parties involved in an economy, i.e, consumer, producer, price, and cost. Therefore, it studies consumer's behaviour, producer's equilibrium, and factor pricing.

Macro economics relates to the study of economics as a whole in an economy. It reflects general equilibrium analysis of a set of people involved in the exchange mechanism i.e, as a market. Therefore, it measures the aggregates of all the micro units in the economy.

• Microeconomic behaviour cannot be added-up to drive macroeconomic behaviour.
• The phenomenon in Microeconomics cannot be generalized for all the units in the economy on an aggregate level.
• For example the theory of an individual firm cannot be universally applied to the whole industrial sector in an economy. The theory of individual consumer behaviour is different from the behaviour of the whole economy’s behaviour at the aggregate level. The demand of a single person may not always match with the economy’s aggregate demand. 

When a written piece is termed as a theory it should have many specifications like facts, assumptions, definitions etc. but the foremost important as well as necessary input is of fact based on real world because theories cannot be developed on fantasies but it should be backed by some legitimate facts.

• Positive economics is a stream of economics that focuses on the description, quantification, and explanation of economic developments, expectations, and associated phenomena.
• It relies on objective data analysis, relevant facts, and associated figures.

Micro economics deals the study of economics from an individual point of view. General price level is a subject matter of macro economics.

Correct Answer :- d

Explanation : Economic laws are not hypothetical in nature, while many microeconomic models may involve many assumptions and tend to over simplify situations, the broad theories are still valid in the real world, it has been proven time and again with empirical data. 

Normative economics deals with subjective economics, and are grounded in personal opinions rather than empirical facts. They tend to be prescriptive and regulatory in nature (ie, they contain advice on what should be done to solve a particular problem).

In mixed type economy (like India),in order to determine the equilibrium price and quantity in the market, free play of demand and supply forces takes place ,together with this government also intervenes in order to keep a check on inflationary and deflationary gap in an economy through certain fiscal and monetary policies.

In socialist economy, the basic force of economic activity is profit.

► This statement is incorrect.

The motive is the welfare of the people. In this system, the means of production and distribution is controlled by the government. The economy is centrally planned by the government so that the useful goods are produced with the objective to look after the needs of the poor section of the society as well.

• The interference of the government is very limited in capitalist economy. There is no central planning authority. In fact, there is little or no government or central authority that takes market decisions.
• The prices are determined by the free interaction of the forces of demand and supply. It is an automatic self-regulating mechanism which runs with the motive of profit.

India is a mixed economy. Means of production are owned by both private and public sector. Thus, both private and public sectors exist side by side.

The uncrowned king in the competitive economy is consumer. Because everything happens according to the consumer's wish in the economy.