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    Positive and normative economic analysis

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    1. Which of the following statements are examples of positive economic analysis? Which are examples of normative analysis?

    a. The inheritance tax should be repealed because it is unfair.
    b. In 2005, France and the Netherlands rejected the new European constitution. As a result, the European economy is likely to be less efficient and will grow more slowly in the years ahead.
    c. Allowing Chile to join NAFTA would cause wine prices in the United States to drop.
    d. The first priorities of the new regime in the Democratic Republic of Congo should be to rebuild schools and highways and to provide basic health care.

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    Solution Preview

    Hi there,

    Before we can address your question, it would be a good idea to review the key difference between positive and normative economic analysis. Essentially, normative economic analysis involves looking at value judgments about what the economy "should" be like or what particular policy actions "should be recommended" to achieve a desirable goal. Positive economic analysis avoids any value judgments. It tries to establish scientific statements about economic behavior and deals with what ...