1.1.2 Positive and Normative Economic Statements

Question 1

What is a positive economic statement?

Answer 1

Positive statements are objective, factual statements that can be tested and verified.
They describe how the economy works without expressing value judgements.
Examples:
“An increase in the minimum wage leads to a decrease in employment.”
“Inflation in the United States was 2.5% last year.”

Question 2

What is a normative economic statement?

Answer 2

Normative statements are subjective statements that involve value judgments and opinions. They express how things should be rather than how they are.
Examples:
“The government should increase spending on healthcare.”
“Income inequality is morally wrong, and policies should address it.”

Question 3

Describe The Role of Value Judgements in Influencing Economic Decision Making and Policy.

Answer 3

Policies such as taxation, subsidies, and regulations are shaped by value judgments. A government may implement progressive taxation to address income inequality based on a value judgment that reducing inequality is desirable.
However:
1. Conflicts in Values: Different people and groups may hold conflicting values, leading to debates over economic policies. Example: Environmental policies may clash with economic growth goals, as stricter regulations might slow economic development.
3. Economists and Value Neutrality: Economists strive for value neutrality by focusing on positive analysis. They provide policymakers with objective data and analysis to inform decisions. Example: An economist might present data on the economic impact of a carbon tax without advocating for or against it.
4. Ethical Considerations: Ethical considerations play a role in economic decisions and policies. Decisions on resource allocation, distribution of wealth, and environmental protection often involve ethical judgments. Example: Deciding how to allocate limited vaccine doses during a pandemic involves ethical questions of fairness and saving lives.
5. Public Opinion and Economic Policy: Public opinion, shaped by values and beliefs, can influence government policies. Policymakers may align their decisions with prevailing values to gain public support. Example: A government may increase funding for education in response to public demand for improved access to quality education.