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CMA Foundation · Fundamentals of Business Economics and Management · The Fundamentals of Economics

Consider these statements. (i) Economics is a science because it studies cause-and-effect relationships using systematic analysis. (ii) Economic laws are as exact and universally certain as the laws of physics. (iii) Positive economics deals with what is, while normative economics deals with what ought to be. Which combination is correct?

Statements (i) and (iii) are correct. Economics is a science because it analyses cause and effect systematically, and positive deals with what is while normative deals with what ought to be. Statement (ii) is wrong because economic laws are less exact than physical laws.

  1. A(i) and (iii) onlyCorrect
  2. B(i) and (ii) only
  3. C(ii) and (iii) only
  4. D(i), (ii) and (iii)

Explanation

Statement (i) is correct as economics follows systematic analysis of cause and effect. Statement (iii) correctly distinguishes positive from normative. Statement (ii) is wrong because economic laws concern human behaviour, are less exact, and hold under the 'other things equal' assumption, so they are not as certain as physical laws.

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