Question

In: Economics

1. Explain the difference between positive and normative economics. Give a real-time example of each that you found in doing some outside research

 

1. Explain the difference between positive and normative economics. Give a real-time example of each that you found in doing some outside research

2. After doing some additional research on your own along with the assigned reading on public goods, answer the following questions:

a. What are the two main characteristics of this type of good?

b. What is the biggest "problem" with allocating public goods?

c. Do you think the government should have a role in allocating public goods, or should goods be privatized? 

Solutions

Expert Solution

1. NORMATIVE ECONOMICS focuses on the value of economic fairness, or what the economy "should be" or "ought to be". this is based on value judgement and have subjective perspective.

EXAMPLE: We should cut taxes in half to increase disposable income levels.

POSITIVE ECONOMICS is based on fact and cannot be approved or disapproved. and have objective perspective.

EXAMPLE: A fall in income will lead to a rise in demand for own-label supermarket foods. if the government raises the tax on beer, this will lead to a fall in profits of the brewers.

   : Based on past data, big tax cuts would help many people, but government budget constraints make that option unfeasible.

2. a. Characteristics of public goods are as follows:-

   1. IT IS NONEXCLUDABLE: It means that it is costly or impossible for one user to exclude other from using the good.

   2. IT IS NONRIVALROUS: It means that when one person uses the good, it does not prevent others from using it.

b. Biggest problem in allocating public goods are as follows:

Many public goods may at time be subject to excessive use resulting in neagtive externalities affecting all users; for example, air pollution and traffic congestion. Public goods problems are often closely related to the "free-rider" problem, in which people not playing for the good may continue to access it.

c. People can't be excluded from using public goods, they can't be charged money for using them, so a private supplier can't make money from providing them... because public goods are generally not adequately supplied by the private sector, they have to be supplied by the public sector.


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