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Chapter 1: Q 1.5 (page 1)

Distinguish between Normative and Positive Economics.

Short Answer

Expert verified

Positive economics makes use of facts and statements based on scientific analysis.

Normative Economics makes use of policies and judgments.

Step by step solution

01

Step 1. Definition of Normative and Positive Economics

Normative Economics deals with policies and their judgements whereas Positive Economics considers facts.

02

Step 2. Differences.

Positive economics considers statements and predictions. It means that if a condition is true in one country it will also be true in another country as well.

For example, India is the second-largest populated country.

Normative economics involves value judgments on certain economic policies and suggestions to control. It shows whether the statement is true or false or whether it is good or bad. It is a kind of critical analysis.

For example, If the price of gas rises, people will buy it less.

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Most popular questions from this chapter

Sebastian is a financial analyst who is convinced that his clients do not always make choices that are consistent with their long-term objectives. He has also determined that his clients do not consider every relevant choice and often fail to act in their own self-interest. Does Sebastian perceive that his clients' behavior accords with the rationality assumption or the assumption of bounded rationality?

Consider the following statements, based on a positive economic analysis that assumes that all other things remain constant. For each, list one other thing that might change and thus offset the outcome stated.

(a) Increased demand for laptop computers will drive up their price.

(b) Falling gasoline prices will result in additional vacation travel.

(c) A reduction of income tax rates will result in more people working.

In a single sentence, contrast microeconomics and macroeconomics. Next, categorize each of the following issues as either a microeconomic issue, a macroeconomic issue, or not an economic issue.

(a) The national unemployment rate.

(b) The decision of a worker to work overtime or not.

(c) A family’s choice to have a baby.

(d) The rate of growth of the money supply.

(e) The national government’s budget deficit.

(f) A student’s allocation of study time across two subjects.

Under the rationality assumption, could a woman potentially take into account her family's welfare as well as her own when considering having another child? Explain your reasoning.

Based on your answer to Problems 1–12, categorize each of the following conclusions as being the result of positive analysis or normative analysis.

(a) A higher minimum wage will reduce employment opportunities for minimum wage workers.

(b) Increasing the earnings of minimum wage employees is desirable, and raising the minimum wage is the best way to accomplish this.

(c) Everyone should enjoy open access to health care at no explicit charge.

(d) Heath care subsidies will increase the consumption of health care.
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