# QUESTION 1 : a,b Classify the following statements into Positive and Normative statements with reasons for your classification.

QUESTION 1 :

a. Classify the following statements into Positive and Normative statements with reasons for your classification.

i. The government should emphasise more on poverty reduction than on economic

growth.

Answer Normative economic, the government should emphasise more on poverty reduction than on economic growth

ii. People would prefer a policy that lowered the level of unemployment to one that

brought inflation down.

Answer Normative,  Because People would prefer a policy that lowered the level of unemployment to one that brought inflation down.

iii. Higher taxes discourage work effort.

Answer Positive economic, Higher taxes discourage work effort. it is based on the facts

iv. A rapid growth rate of money is the cause of inflation.

Answer: positive economic, A rapid growth rate of money is the cause of inflation.

v. Government should raise the tax on tobacco as to discourage people from smoking.

Answer: Normative because  Government should raise the tax on tobacco as to discourage people from smoking.

B. b. Kelen and Chris produce rice and wheat. In an hour, Kelen can produce 1 unit of wheat or

one unit of rice, while Chris can produce 2 units of wheat and 3 units of rice. They each

work 10 hours a day. (8.75)

i. Who has an absolute advantage in producing wheat? Who has an absolute advantage

in producing rice? Explain.

Not form our sources

ii. Who has comparative advantage in producing wheat? Who has Comparative

advantage in producing rice? Draw a production possibilities frontier for Kelen and

Chris assuming that each spends same number of hours each day as the other in

producing wheat and rice.

c. Calculate TFC, if AC and AVC are \$22 and \$18 respectively at output of 10 unit. (5)

AC=TC/Q

TC=AC*Q

TC= \$22*10

TC= \$220

AVC=TVC/Q

TVC=AVC*Q

TVC=\$18*10

TVC=\$180

TC=TVC+TFC

TFC=TC-TVC

TFC=\$220-\$180

TFC=\$40

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