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    Positive vs Normative Statement

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    Explain the difference between a positive and normative statement. Give an example of each type of statement.

    How can an economy achieve points that are outside the production possibilities curve?

    Review the Spillover Principle. Give an example of a good with a positive externality and a good with a negative externality (not mentioned in the online text). What are the best ways to allocate goods with externalities?

    Do some research on your own on public goods. What are the two main characteristics of this type of good? What is the biggest "problem" with allocating public goods? Do you think the government should have a role in allocating public goods, or should goods be privatized? Be sure to support your answer with references.

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    Solution Preview

    In accordance with BrainMass standards this is not a hand in ready assignment but is only background help.

    Step 1
    Positive statement is objective and fact based while normative economics is subjective and value based. Positive statements in economics focus on description and explanation of phenomena and their causal relationships. However, normative statements are value judgments, opinions, and economic fairness. Positive economics states an economic issue. These statements can be tested, changed, or rejected based on available evidence(a). An example of a positive statement is that if the government raises tax on cigarettes, this will reduce the profits of cigarette companies. An example of normative statement is that unemployment is more harmful than inflation.

    Step 2
    The production possibilities curve represents efficient use of all the economy's resources. The points outside the production possibilities curve are unattainable production points given current resources and technologies. It is impossible for an economy to produce outside its production possibilities curve given its current resources and technologies(b). An economy can produce outside its production possibilities curve if there is an increase in the country's resources. For example, the country discovers that it has an untapped source of crude oil. An ...

    Solution Summary

    This posting gives you a step-by-step explanation of four questions of microeconomics. The response also contains the sources used.