1.1.2 Positive and Normative Economic Statements

Question 1

Explain positive economic statements and give an example

Answer 1

• Positive statements are objective, factual statements that can be tested and verified.
• They describe how the economy works without expressing value judgments.
  Examples:
  “Inflation in the United States was 2.5% last year.”

Question 2

Explain normative economic statements

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.”

Question 3

Explain the importance of the distinction between positive and normative statements.

Answer 3

• Economists use positive statements to analyze and understand economic phenomena objectively.
• Normative statements are important in shaping economic policies but are influenced by personal values and beliefs.

Question 4

Explain the role of Value Judgements in Economic Decision Making

Answer 4

• Economic decisions often involve choices influenced by individual or societal values.
• Policies such as taxation, subsidies, and regulations are shaped by value judgments.
• Example: A government may implement progressive taxation to address income inequality based on a value judgment that reducing inequality is desirable.

Question 5

Explain why there may be conflicts in values

Answer 5

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.

Question 6

How do economists strive for value neutrality by focusing on positive analysis?

Answer 6

• 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.

Question 7

How do ethical considerations play a role in economic decisions and policies?

Answer 7

• 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

Question 8

How can public opinion, shaped by values and beliefs, influence government policies?

Answer 8

• 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