Question

1/ Which of the following is an example of an externality?

A paper mill dumps waste into the river.

A neighbor’s loud music disrupts sleep.

A drunk driver causes an accident that injures another person.

All of the above are correct.

2/When economists disagree about whether the government should tax a household’s income or its consumption, they are expressing a difference in ______ ?

3/ Which of the following statements are positive and which are normative?

a.	The minimum wage creates unemployment among young and unskilled workers.
b.	The minimum wage ought to be abolished.
c.	If the price of a product in a market decreases, then, other things equal, quantity demanded will increase.
d.	A little bit of inflation is worse for society than a little bit of unemployment.
e.	There is a tradeoff between inflation and unemployment in the short run.
f.	If consumer income increases, then, other things equal, the demand for automobiles will increase.
g.	The U.S. income distribution is not fair.
h.	U.S. workers deserve more liberal unemployment benefits.
i.	If interest rates increase, then investment will decrease.
j.	If welfare benefits were reduced, then the country would be better off.

Answer 1

1) An externality is a phenomenon when a commercial or economic activity affects the third party who is not involved in this activity. A paper mill dumps waste into the river, it is a negative externality. A neighbor's loud music disrupts sleep is a negative externality. A drunk driver injures another person is a negative externality. So all of the above is correct.

2) When economist disagrees about whether the government should tax a household's income or it's consumption, they are expressing a difference in normative views. (As economist may have different values or opinion what government policy should aim to achieve)

3) A positive statement is objective and fact-based, it must be able to be tested and proved or disapproved. A normative statement is opinion based, it can not be tested.

a) Positive statement

b) Normative statement

c) Positive statement

d) Positive statement

e) Positive statement

f) Positive statement

g) Positive statement

h) Normative statement

i) Positive statement

j) Positive statement

Here all the positive statement can be tested for approval or disapproval. A normative statement is purely opinion based.