There are three uses of economics: to understand the economy (positive economics), to set goals for the economy (normative economics), and to achieve those goals given how the economy functions (the art of economics).
- Positive economics is the study of what is
- Normative economics is the study of what should be
- Art of economics is using the knowledge of positive economics to achieve the goals determined in normative economics
3. Identify the following statements as examples of positive economics, normative economics, or the art of economics:
a. Based on microeconomic models, extending the tax cuts instituted in 2001 will likely continue to further the trend of growing income inequality in the United States.
b. The Federal government needs to raise the minimum wage to $8 per hour so that families will have sufficient income to meet their basic needs.
c. A country’s overall income is more important than how that income is distributed.
d. One in four workers today has no access to employment-based family health coverage.
e. To reduce income inequality in the U.S., we could increase the earned-income tax credit.
f. It is the federal government’s responsibility to assure health coverage for all families.
Colander, D. C. (2013). Economics (9th ed.). Instructor Manual. New York, NY: McGraw-Hill.
Before answering watch this video. Episode 5. Positive and Normative Econ.