Question

In: Economics

For each of the following, note whether the statement is an example of positive economic analysis or an example of normative economic analysis

For each of the following, note whether the statement is an example of positive economic analysis or an example of normative economic analysis:

(a.) An increase in the minimum wage will lead to a higher rate of teenage unemployment.

(b.) If the government reduces the tax on tobacco, more individuals will start smoking.

(c.) The government should lower taxes because tax rates are too high for the average U.S. family.

(d.) Wealthy senior citizens can afford to buy their own health insurance and therefore should not be given Medicare coverage.

(e.) If the price of apples increases, people will buy more bananas.

Expert Solution

Positive economics is that branch of economics which tries to explain economic phenomenon with cause and effects of the real woorld that is based on facts.

Normative Economics, on the other hand, is based on value judgement about what should ideally happen in the world.

a. Positive economics

This is because it is a fact that increase in minimum wage will lead to a fall in teenage employment and that is an example of cause and effect of the real world.

b. Positive Economics

Reduction of tax in tobacco is bound to increase the number of smokers because tobacco products will become cheaper.

c. Normative economics

This comes under normative economics because ideally the government should reduce taxes but however, in the real world, reducing taxes will have other economic consequences which does not make it feasible for the government to take this step. For example: reduction in taxes will lead to a fall in government earnings which will then lower government spending on infrastructure, education and health.

d. Normative economics

This comes under normative economics because ideally wealthy senior citizens should not be given medicare coverage but nevertheless, in the real world they do get these coverages.

e. Positive economics

This comes under positive economics because if a person is looking to buy fruits, then in the real world if the price of one fruit increases, he will shift his/her consumption to other fruits which are cheaper.

Rahul Sunny answered 2 years ago

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