Normative and Positive Economics - Essay Example

DQ1 Normative and positive economics refers to positions in regards to economic ments. Positive economics deals with facts or questions in regard to how things should be. When a person makes a positive economic statement biases or emotions cannot be a part of the equation. Positive statements can be structure in terms of what occurred in the past, what is occurring in the present and future probable economic outcomes. For instance an economist may state that lowering the prime rate will cause the inflation of the nation to go down.

Positive economics is different than normative economics because these types of economic statements are based solely on opinion and they do not consider fact or economic theories. An example of a positive economic statement is: I believe that the current employment rate has gone up due to the poor job of the Obama administration. Due to the various opinions of analysts and economists I believe the most utilize of these two methodologies is positive economics. In reality normative economics has greater validity.

As far as official governmental data the use of normative economics due to its validity is used more often. There is a clear relationship that exists between ethics and economics. Positive economics is often used by governments to establish economic polices. In this process ethics plays a big part because governments have to decide how to allocate resources. Is it ethical to eliminate welfare benefits in order to reduce taxes to the middle and upper class? Should environmental regulation be reduced in order to lower business costs in America to increase job creation?

These are some of the ethical questions associated with positive economics. Normative economics also must consider ethics. A person should not make economic opinions that do not consider the ethical implications of the statement. The following normative statement is not ethical: The unemployment rate among Afro-Americans is so high because they are lazy. DQ2 Market efficiency is needed for scarce resources to be allocated efficiently among the participants of an economy which usually implies the population of a nation.

The United States has one of the most efficient economies in the word. The United States economy is classified as a free market. In such an economy the government does intervene, but not as much as in a command economy. I believe that government intervention is needed to achieve market efficiency. The distribution of income is not equally distributed among the participants of a market. In order to level out the playing field the government implements mechanisms such as tax systems to take out a portion of the wealth of the middle and upper class with the objective of using that money to distribute it back to the poor, disable, and elderly through programs such as welfare, social security, and Medicaid.

Ethics plays a big role in market efficiency. For instance the government has to decide how to allocate resources based on need. Another ethical consideration of an efficient market is what types of regulations the government implements. If the government reduces environmental laws to lower business costs in the United States the decision may be unethical since such a move would adversely affect our natural environment. DQ3 “Economics is the study of how society allocates scarce resources and goods” (Cliffnotes, 2011).

Based on that definition one would think that scarcity is a key element of the applicability of economics, but resources that are not scarce typically have a price of cero. It would be hard for me to imagine a world in which everything was free. That type of mentality is associated with concepts such as utopia which is an ideal or perfect society. Based on the reality of the world having limited resources a lack of scarcity is something that will never occur. Things are just getting scarcer. I recently read an article that stated the earth has a capacity to generate food for a maximum of 10 billion people and I believe I will live in such a world when I get older since the current population of earth is 6.

96 billion inhabitants. I guess in theory if there were unlimited resources maybe economics would not be needed. This is just my opinion since I do not have enough knowledge in the discipline of economics to know the true answer. I hope that by the end of this course I will know the true answer to this question. Cliffnotes.com (2011). Economics defined. Retrieved September 29, 2011 from http://www.cliffsnotes.com/study_guide/Economics-Defined.topicArticleId-9789,articleId-9722.html 4. The use of positive economics has greater functionality because it can be used by governmental agencies to establish economic policy.

One of the agencies in the United States that utilize normative economics a lot is the Federal Reserve. The FED is responsible for establishing the monetary policy of the United States of America. Political leaders such as senators or governors must consider the implications of normative economics because this branch of economics can be very useful to predict future economic outcomes. An example of a positive economic statement is: The price of oranges has increased by 32% during the past three years. 5. Normative economics is often used by a lot of people because these types of statements are based on opinion.

I have noticed that a lot of people seem to think that they know about economics and they regularly use normative economic statements to express themselves. My grandfather was one of those persons. I remember when I was younger he often complained about the decisions of the government by making economic statements. At the time I was a child and I thought the things he was saying were true. I later learned that it was all a fallacy. I now realize that the statements he made were based on positive economics. 6. participation-Martine The stock market is incredibly volatile and unpredictable.

I believe in the value of market efficiency, sometimes an investor can take advantage of it. A few years ago I invested in a stock called VTSS. The company’s financial statements at the time were going to be favorably affected by a change in accounting rules. I bought the stock at $0.35 when the change was in the process of occurring. Within a fourth month period the stock went up to over $1.50. The value of my investment when up more than 4 times, I made a profit of over $1300 on my $400 investment when I sold it four months later.

The price went up because market efficiency adjusted the value of the stock. 7. participation:Martine question3 When I read this question I thought it was a trick question. Based on your answer I would disagree with you. Economics deals with scarce resources. The prices for these resources are adjusted based on the law of supply and demand. Without the existence of scarcity there would be no reason for prices. We would live in an economy where everything was free. Think about the demand for petroleum.

The price of crude oils keeps going up because there total world reserves of petroleum are going down. Back in the 1950’s you could full your tank of gas for a couple of bucks. Today I have to pay over $60 to fill up my tank. 8.participation question1: 8.professor-participation I think ethics affects economics more depending on the country. Countries that have major social issues such as the Sub-Saharan African region are faced with some tough choices. People are living with under $1 a day of income.

There is a lack of food, medicine, and water. Others countries in that region such as Zimbabwe have dealt with other serious economics problems such as hyperinflation. The governmental officials have to find a balance to distribute the limited budget to find solutions for many problems. Confidence in the government is sometimes hard to come by. People often complain about the economic policies of the government. To feel confident in normative economics the information must come from reputable sources that can judge whether the governmental information provided is true.

The government in the past has not showed honesty on many occasions. As the information age has come upon us the government of the United States has become more truthful.