Timothy Lawrence

Microeconomics
1

Problems 3.9 and 4.2 in book, pg 25.

3.9 Explain which of the following statements represent positive analysis and which
represents normative analysis.
Normative economic analysis refers to economic statements or theories that cannot be
empirically proven whereas positive economic analysis refers to economic statements or
theories that can be empirically proven. For example "a ban in smoking in public places will
reduce the revenue of the tobacco industry" is a positive statement because you can collect
data to prove whether it is true or false. On the other hand, the statement "unemployment is
preferable to inflation" is a normative statement because it reflects a personal belief and thus
cannot be verified or falsified. 1
a

A 50-cent per pack tax on cigarettes will lead to a 12 percent reduction in smoking by teenagers.
Positive. There is a plethora of data regarding smoking rates amongst teenagers. You could
also take the average cigarette prices in areas where there are schools, and compare them.
Finally, to answer the question. It is possible to find data on price increases in cigarettes and the
smoking rates in teens. This topic would have plenty of data. Not only in price increases, but tax
increases; rates of teen smoking, vs rates of teen smoking during rapid overall cost increases of
cigarettes.
the federal government should spend more on AIDS research.
Normative - This is far too subjective. It isnt offering a cause and effect. One could say the
government should spend more money on anything. I think the government should spend more
money trying to find my lost car keys.
Rising paper prices will increase textbook prices.
Positive. This is an easy one. Take the cost of paper over X years and compare it directly to the
cost of textbooks over X years.
The price of coffee at Starbucks is too high.
Normative. Too high for who?

4.2 Briefly explain in whether each of the following is primarily a microeconomic issue or
a macroeconomic issue.
Microeconomics is the study of decisions that people and businesses make regarding the
allocation of resources and prices of goods and services. This means also taking into account
1 "In economics, what is the difference between positive analysis and ..." 2007. 29 Mar.
2013 <http://answers.yahoo.com/question/index?qid=20070903230515AAdnIuD>

Timothy Lawrence
Microeconomics
2
taxes and regulations created by governments. Microeconomics focuses on supply and demand
and other forces that determine the price levels seen in the economy. For example,
microeconomics would look at how a specific company could maximize it's production and
capacity so it could lower prices and better compete in its industry.2
Macroeconomics, on the other hand, is the field of economics that studies the behavior of the
economy as a whole and not just on specific companies, but entire industries and economies.
This looks at economy-wide phenomena, such as Gross National Product (GDP) and how it is
affected by changes in unemployment, national income, rate of growth, and price levels. For
example, macroeconomics would look at how an increase/decrease in net exports would affect
a nation's capital account or how GDP would be affected by unemployment rate.3

a. The effect of higher cigarette taxes on the quantity of cigarettes sold

Microeconomics. Here is a direct cause and effect relating to taxes.
b. The effect of higher income taxes on the total amount of consumer spending
Macroeconomics. This is dealing with the entire country.
c. The reasons for the economics of East Asian countries growing faster than the economics of
sub-saharan African countries
Macroeconomics. This is a broad topic regarding the entirety of an economy.
d.The reasons for low rates of profit in the airline industry
Microeconomics. minute, granular, aspects of the allocation of resources within a specific
industry.

2 "What's the difference between macroeconomics and microeconomics?." 2002. 29 Mar.

2013 <http://www.investopedia.com/ask/answers/110.asp>

3 "What's the difference between macroeconomics and microeconomics?." 2002. 29 Mar.

2013 <http://www.investopedia.com/ask/answers/110.asp>