1.1 POSITIVE & NORMATIVE STATEMENTS AND OPPORTUNITY COST
This video is relevant for this section despite it saying that it is for AQA.
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Positive & Normative Statements
In Economics, we have two types of statement; positive and normative.
In Economics, we have two types of statement; positive and normative.
Positive statements are those that can be tested to see if they are either true or false, where ‘true’ means consistent with the facts.
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Examples include:
- “Tesco employs x thousand workers”
- “Joe obtained an A at A Level Economics”
- “David Cameron is the leader of the Conservative Party”
- “The unemployment rate this quarter is higher than the unemployment rate last quarter (number of individuals claiming job seekers allowance)”
Normative statements reflect individuals or organisations opinions. They tend to include words such as ‘should’ or ‘ought’. These statements cannot be verified by looking at the facts.
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Examples of normative statements are:
All of the above statements are based on value judgments that express views in terms of what is ‘good’ or ‘bad’ and ‘right’ or ‘wrong’. These statements cannot be proved or disproved by simply looking at facts.
Economists will be able to say the consequences of a policy but they should not say whether the outcomes are desirable or not. Normative statements tend to be dated and are usually settled by a vote. People’s views concerning the best option are influenced by positive consequences of different decisions (i.e. looking at the facts that have arisen from similar decisions) and by moral and political judgment.
- “The minimum wage ought to be raised”
- “Britain pays too much out in benefits”
- “Greece should leave the Euro”
- “The Government ought to reduce inflation”
All of the above statements are based on value judgments that express views in terms of what is ‘good’ or ‘bad’ and ‘right’ or ‘wrong’. These statements cannot be proved or disproved by simply looking at facts.
Economists will be able to say the consequences of a policy but they should not say whether the outcomes are desirable or not. Normative statements tend to be dated and are usually settled by a vote. People’s views concerning the best option are influenced by positive consequences of different decisions (i.e. looking at the facts that have arisen from similar decisions) and by moral and political judgment.
OPPORTUNITY COST
Opportunity cost is the cost of an alternative that must be forgone in order to pursue a certain action. It is the benefit that you could have received by taking an alternative action. Examples would include:
Opportunity cost is the cost of an alternative that must be forgone in order to pursue a certain action. It is the benefit that you could have received by taking an alternative action. Examples would include:
- If you were a farmer and you chose to grow carrots on a field. The opportunity cost here would be the other crops that you could have grown on that piece of land such as wheat, corn or potatoes.
- For a firm who made a profit of £100,000 and chose to invest in new machinery (fixed capital). The opportunity cost to the firm is what they could have done with £100,000 rather than investing in machinery. This would include giving the £100,000 back to shareholders, keeping the cash as a buffer, just in case there was a bad year, increasing the wages of employees, giving a one-off bonus to staff and choosing a different investment project, such as, new research and development or acquiring a new firm.
- Another example is to imagine that you are a consumer that has 30p. With this 30p you choose to buy two Fredos. The opportunity cost would be what else you could have got for the 30p such as 30 penny sweets, 3 packs of 10p Haribo, the addition of 30p to your bank account etc…