1, Positive vs normative analysis, which of the following statements indicate a
ID: 1133872 • Letter: 1
Question
1, Positive vs normative analysis, which of the following statements indicate a positive analysis and which indicate a normative analysis? Explain your answer in each case. (a) If the United States lifts the prohibition on imports of Cuban cigars, (b) A freeze in Florida will lead to an increase in the price of orange juice. e) To provide revenues for public schools, taxes on alcohol, tobacco, and (d) Telephone companies should be allowed to offer cable TV service as (e) If telephone companies are allowed to offer cable TV service, the price (f) Government subsidies to farmers are too high and should be phased the price of cigars will fall. gambling casinos should be raised instead of increasing income taxes. well as telephone service. of both types of service will fall. out over the next decade.Explanation / Answer
Answer - All given statements have been classified into 'Normative' and 'Positive' statements according to economic analysis. Positive statements are those which shows a relation between cause and effect and can be repeated many times giving same results. Normative statements are those which are related to welfare and policies in the economy. Normative statement suggests ''what should be?' in the economy.
(1) If USA lifts prohibition on import of Cuban Cigars, imports of Cuban cigar will increase. Since supply of Cuban cigar has been gone up then price of Cuban cigar will go down in USA. There is clear cause and effect relation between both. This statement is a 'Positive statement''.
(2) A freeze in Florida can destroy crop of citrus fruits. There would be a sharp decrease in the supply of oranges. Oranges are input for orange juice therefore orange juice price will go up. This statement is also a positive statement.
(3) To provide revenue for public schools, the government is considering to increase taxes on tobacco, taxes on gambling, taxes on alcohol. The government does want to increase income tax in the economy. This statement is related to policy of public schools funding and well-being of students. Thus, this is a 'Normative statement'.
(4) The telephone companies should be allowed to provide TV service, there is no cause and effect relation. It did not describe why should telephone companies provide TV service also. This is a 'Normative statement''.
(5) If telephone companies are allowed to offer TV services, the price of both type of services will fall. Cause and effect relation is stablished here. If we allowed telephone operated to offer TV services, price will fall due to competition with other market players. This is a 'Positive statement'.
(6) Government subsidies to farmers are too high and should be phased out. This is related to welfare of farmers. This is a policy decision of the government. This is a 'Normative statement.
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