Multiple Choice
Which of the following costs should be ignored when weighing the costs and benefits of an action?
80
views
0. Basic Principles of Economics
Positive and Normative Analysis
Multiple Choice
Which of the following statements best illustrates positive analysis, assuming ceteris paribus?
A
The government should increase taxes to reduce income inequality.
B
Society ought to provide free healthcare for all citizens.
C
If the price of coffee increases, the quantity demanded of coffee will decrease.
D
It is unfair that some people earn more than others.
Verified step by step guidance1
Step 1: Understand the difference between positive and normative analysis. Positive analysis deals with objective, testable statements about how the world works, often expressed as cause-and-effect relationships. Normative analysis involves subjective judgments about what ought to be, based on values or opinions.
Step 2: Review each statement and classify it as positive or normative. For example, statements that include words like 'should,' 'ought,' or express fairness or value judgments are normative.
Step 3: Identify the statement that makes a factual claim about economic behavior without expressing an opinion or value judgment. This is the hallmark of positive analysis.
Step 4: Recognize that the statement 'If the price of coffee increases, the quantity demanded of coffee will decrease' is a testable hypothesis about economic behavior, assuming ceteris paribus (all else equal). This fits the definition of positive analysis.
Step 5: Conclude that the correct choice is the statement about the price and quantity demanded of coffee, as it illustrates positive analysis by describing a cause-and-effect relationship without making a value judgment.
Related Videos
Related Practice
