Introduction to Economics
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Introduction to Economics
Explain the difference between positive and normative economics. Give a real-time example of each that you found in doing some outside research.
Understanding what economics entails is important to define the difference between positive and normative economics effectively. Economics refers to the study of the production, distribution, and consumption of products and services. Economics, therefore, indicates how people make decisions to have better lives. Many aspects are associated with economics, and the social behaviors stipulate ways of maximizing efficiency and profits from the consumed goods and services.
Positive economics is an aspect that emphasizes facts and focuses on reasons why the economy operates in a particular manner. Therefore, the positive economics branch gives a detailed explanation and description of economic phenomena. Great focus is also directed towards behavioral relationships, facts, causes, and effects. Positive economics also entails the development and implementation of economic theories. Often, positive economics is considered to be the opposite of the normative statement. It is more objective and deals with economic facts. Positive economics is developed after thorough economic research has been conducted and factual information collected (Schreck, Van Aaken & Donaldson, 2016). Essential information collected helps create a statement that describes the economic phenomena. The law of demand is one of the vital statements in economics, which indicates that if all factors remain constant and prices rise, the demand will decline while a decrease in prices of goods and services leads to an increase in demand.
Economists identify several examples of positive economics. Firstly, cutting income taxes in an economy increases disposable income. The facts regarding the example indicate that if a taxpayer pays less income tax, they will have more money for their needs. Secondly, decreases in the demand for products and services make the prices decrease in an economy. Thirdly, the statement that government-sponsored healthcare leads to the increase of public expenditure. The validity of the fact-based statement can be proved through research studies on healthcare spending in areas where the government has provided essential healthcare.
Normative economics is acknowledged as a school of thought that economics needs to pass judgment, value statements, and opinions concerning economic projects, statements, and policies. Thus, the aspect of economics evaluates outcomes and situations regarding economic behavior as either morally good or bad (Schreck, Van Aaken & Donaldson, 2016). Importantly, normative economics expresses the ideological judgments regarding what economic activity may result in public policy changes. The normative statements are often derived from the point of view and are based on people’s values since they are subjective. Since normative statements are mostly perceptive hence can be considered authoritarian.
A real-life example of normative economics includes the statement that the government should make quality healthcare available to every citizen in the country. Clearly, the statement is focused on a personal perspective. Another example is that the government should implement tax laws to eliminate the uneven distribution of wealth (Schreck, Van Aaken & Donaldson, 2016). The values and opinions reflect judgment, which makes it different from positive economics based on figures and facts. Ample data strongly support
an individual’s point of view.
Two main characteristics define public goods. Examples of public good include law enforcement organization, sanitation infrastructure, public service broadcasting, and national defense. Therefore the goods are said to be non-excludable and nonrivalrous. Public goods are defined as non-excludable, meaning that it is impossible to prevent citizens from accessing and using good (Feler & Senses, 2017). It also means that if there is a provision of national defense by the government, every citizen is included. Even if one disagrees with the public good such as the national policies, the public good still protects them. One cannot decide that the goodwill does not protect or exclude them. The second essential public good characteristic, nonrivalrous, indicates that when one citizen uses the good other people can also use it (Elliott & Golub, 2019). A good example is a national defense. Consumption of services from the national defense does not reduce the amount left for other people. Therefore, no rivalry character of the public good is explained when one’s consumption of the good does not hinder other people’s utilization opportunity.
A great problem is encountered when analyzing public goods from an economic point of view because they are easily accessible and available to people in an economy. Several challenges arise when public goods are equitably allocated to citizens. One of the major problems is experienced since public good buyers fail to make direct payments. Sellers also contribute to the challenge since they fail to provide quality goods since they do not benefit from providing the goods. Consequently, the economy experiences market failure created by private markets in their activities of allocating resources to produce more public goods (Grossman, Pierskalla & Boswell Dean, 2017). Market failure creates a situation whereby people are often willing to pay for public goods; however, they are not sure if the goods will benefit them, and their efforts turn out to be worthwhile. It becomes difficult to conserve the available resources since they are mostly free; thus, citizens can comfortably access and utilize them. Therefore, there creates a need to formulate different and sophisticated economic analyses to determine the allocation of public resources.
In my view, I think that the government should not have a role in the allocation of public goods, and therefore they should be privatized. However, in some circumstances, the government may benefit society through the equitable allocation of some available resources. Some solutions to the assurance problem indicate that people believe in the goods’ payments. Still, they are not sure of some radicals such as altruistic punishment, assurance contracts, and intergeneration goods. Altruistic punishment is likely to occur when people get permission to punish free-riders. It is an approach that would benefit the public since there will be an increase in contributions from public goods where people bear retribution from free riders. Similarly, assurance contracts where public goods are produced requires no government role. Kick starter is one example of assurance contracts in economics that offers people an opportunity to contribute to goods desired to a donation.
Intergeneration and global goods are the only aspects that I think the government should play to allocate resources. Goods such as antibiotic is an example of the global public goods that require government intervention. Such goods are difficult;lt to offer to the public since their efficiency decreases as their use increases. The public can be preserved well by making it private. Revenues and fees can be used to fund basic research to help improve the goal of the goods. Such government allocation is essential since it will benefit the public.
References
Schreck, P., Van Aaken, D., & Donaldson, T. (2016). Positive economics and the normativistic fallacy: Bridging the two sides of CSR. Business Ethics Quarterly, 297-329.
Elliott, M., & Golub, B. (2019). A network approach to public goods. Journal of Political Economy, 127(2), 730-776.
Feler, L., & Senses, M. Z. (2017). Trade shocks and the provision of local public goods. American Economic Journal: Economic Policy, 9(4), 101-43.
Grossman, G., Pierskalla, J. H., & Boswell Dean, E. (2017). Government fragmentation and public goods provision. The Journal of Politics, 79(3), 823-840.