1. Identify each as either Positive (P) economic statements or Normative (N) eco
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Question
1. Identify each as either Positive (P) economic statements or Normative (N) economic statements:
Smoking causes unfair harm in public parks.
An increase in income will cause a decrease in the demand for some
foods.
Unemployment should be addressed by the government before immi- gration reform.
Increasing taxes on alcohol will reduce teenage drunk driving.
Increasing taxes on alcohol will reduce teenage drunk driving, which
is a good thing.
Pollution is a more serious economic problem than unemployment.
2. Education and income inequality in the United States
(a) List three different ways to measure educational attainment across states (states are the unit of observation).
(b) In your own words, describe the Lorenz Curve and Gini Coefficient.
(c) Fully describe an experiment to investigate the relationship between education and income inequality in states.
Explanation / Answer
1. There is difference between positive and normative statement. The positive statement is objective and actually based on facts, while on the other hand, the normative statement is subjective and value based. It is not necessary that the positive economics statement has to be correct, the statement can be tested and on basis of that it can be approved or disapproved. As for normative economics it is totally based on view of rational opinion.
2. The education level can be measured across state by calculating:
a. Mean years of schooling index.
b. Expected years of schooling index.
c. Literacy rate.
Lorenz curve was developed by Max O. Lorenz in the year 1905. It is graphical representation of cumulative distribution function of wealth across different income groups. Economists use it to measure social inequality.
Gini coefficient was developed by Italian statistician Corrado Gini in the year 1912. It is a measure of statistical dispersion of income among the resident of a country. It actually measures the income inequality. The coefficient varies from zero to one. When coefficient is one, it indicates that one person holds all the wealth and other have nothing, while on the other hand when the coefficient is zero; it implies that the income in the economy is distributed equally.
From the research it has been found that the level of income inequality has been rising with the level of education attainment. This is understandable because with the higher level of education attainment an individual is relatively more productive, and hence earn higher income. People who are in higher income bracket must be highly educated.
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