In this first Case Assignment, you will be researching some of the key economic terms and concepts presented in the required and outside readings. You will then turn your theoretical research into practice by defining the terms and concepts, as well as offering real-time examples of each. This is a multi-part assignment, so make sure that you have addressed each question or topic. The best way to approach this assignment is to prepare your responses in outline form following the order of each question/topic. This will help you keep track of your responses.
Case Assignment
After reviewing the information listed on the background materials page, address the following questions in an essay or short-answer form. Support all your answers with references:
Explain the difference between positive and normative economics. Give a real-time example of each that you found in doing some outside research.
After doing some additional research on your own along with the assigned reading on public goods, answer the following questions:
What are the two main characteristics of this type of good?
What is the biggest “problem” with allocating public goods?
Do you think the government should have a role in allocating public goods, or should goods be privatized?
Here’s a great site that offers definitions and examples of economic terms literally from A to Z; https://tinyurl.com/6rxna6a
References:
Please review the Required Readings in the order they are listed.
Introduction to Economics, Khan Academy video, created by Sal Khan, 2012
There is a transcript available that accompanies the video. To view it, click “Transcript” directly beneath the “Introduction to economics” title beneath the video screen.
Use the ‘TinyURL’ to access the video: https://tinyurl.com/kwazxpt
https://www.khanacademy.org/economics-finance-domain/macroeconomics/gdp-topic/econ-intro-in-macro-tutorial/v/introduction-to-economics
What is Economics and Why Is It Important, Creative Commons article, by Phil Schatz, OpenStax College, Economics. OpenStax CNX, (n.d.)
Use the “TinyURL” to access the article: https://tinyurl.com/yanr4t3v
If it is not working, here is the full URL: http://philschatz.com/economics-book/contents/m48591.html
Principles of Microeconomics, Video lecture (34:14) presented by Professor Jon Gruber, MIT, 2012
Transcript is under “…More
Use the “TinyURL” to access the video: https://tinyurl.com/yaztgyky
If it is not working, here is the full URL: https://www.youtube.com/watch?v=Vss3nofHpZ
What are public goods? Khan Academy video presented by Professor Jonathan Anomaly, 2015
The video also has a Transcript option.
Use the “TinyURL” to access the video: https://tinyurl.com/y9nqzpga
If it is not working, here is the full URL: https://www.khanacademy.org/partner-content/wi-phi/wiphi-value-theory/wiphi-political/v/what-are-public-goods
Answers
Positive and Normative Economics
Positive Economics
Positive economics is one of the two standard branches of economics used to explain different economic phenomena. In particular, positive economics focuses on data to describe different dynamics concerning the economy. For instance, in order to make proper inferences, economists using positive economics rely on past and present trends. The use of tangible evidence gathered in the past, and current economic evaluations help in the formulation of proper inferences and predictions (MIT OpenCourseWare, 2012). On the whole, instead of relying on conjectures and unproven statements, positive economics focuses on the use of credible data to inform policies and actions.
Positive economics is founded on two main elements, i.e. behavioural finance and economic relationships, and their causes and effects. Ordinarily, behavioural economics relies on psychology-based assumptions to make predictions. For instance, under this approach, one would expect people to make informed decisions based on the information available in their immediate environment (MIT OpenCourseWare, 2012). As such, positive economics relies on available information and facts to inform actions and policies.
Example of Positive Economics
While doing this research, I stumbled upon different models of positive economics. The most outstanding among those examples are, “Congress approved close to 8 billion coronavirus relief packages”. This statement demonstrates positive economics since its credibility can be determined by researching the amount approved by congress as Covid 19 relief package.
Normative Economics
Normative economics is the other standard branch of economics used to explain different economic phenomena. Unlike positive economics, normative economics focuses on opinions and value judgements instead of credible scientific data. As such, normative economists are guided by personal convictions and persuasions, and not information gathered through systematic research (“Introduction to economics”, n.d). Thus, the primary objective of normative economics is to evaluate people’s preferences and opinions and summarize them in order to make specific decisions concerning economic policies and development (“Normative and positive statements”, n.d). Accordingly, instead of relying on information and data available in the environment, normative economists ask people what they feel or think should be done, and formulate policies and decisions based on the responses (“Introduction to economics”, n.d). On the whole, normative economics is opinion-oriented and not facts-based.
One of the most notable aspects of normative economics is its rigid and authoritarian nature. In this context, policies or decisions stemming from this branch are likely to sound authoritarian or political, mainly because they are informed by subjective values based on deeply ingrained personal perspectives and opinions (“Introduction to economics”, n.d). The reliance on feelings and opinions prevents people from focusing on reality stemming from scientific data. Accordingly, under normative economics, people are likely to do what they think should be done instead of what ought to be done (“Normative and positive statements”, n.d). On the whole, normative economics originates from personal opinions and not credible scientific data.
Example of Normative Economics
The majority of normative economics I have encountered relate to government policies amid the Covid 19 pandemic. Following the virus outbreak, different quarters have argued in favour of increased government support, especially in the wake of decreasing profits. Accordingly, one of the most common normative statements I have encountered is, “state and local governments should offer tax breaks and other incentives to businesses in the wake of the coronavirus pandemic”. This statement is borne out of personal feelings and opinions regarding what should be done and not necessarily what ought to be done following the coronavirus outbreak.
Significant Differences Between Positive and Normative Economics
Generally, the significant difference between positive and normative economics lies in their approach towards different economic challenges or dynamics. On the one hand, positive economics relies on facts and evidence gathered from a careful evaluation of the environment. On the other hand, normative economics relies on personal convictions, feelings and opinions. As such, positive economics focuses on what ought to be done while normative economics concentrates on what one feels should be done.
Public Goods
The concept of public goods and the dynamics surrounding such utilities are primary economic considerations. Ideally, public products are commodities and services that are freely accessible to all members of society. In most cases, such utilities and services are provided by the government and paid for through indirect methods such as taxation (“Political-what are public goods?”, n.d). As such, even though such services are not paid for directly at the point of delivery, the payments are made collectively in the form of taxes levied by the government (“Political-what are public goods?”, n.d). Common examples of public goods include law enforcement services, national defence, as well as clean water and environment. On the whole, public products are services that are provided by the government and whose payment is done indirectly through taxes.
Characteristics of Public Goods
Public goods have two main features, namely non-rivalry and non-excludability.
Non-rivalry
Non-rivalry goods are utilities whose supply is not affected by the extent to which the public consumes them. This means that such goods remain constant no matter how much society consumes them. In addition, the amount of non-rivalry products or services available to an individual is not affected by the volume consumed by others (Mihnea, Costache & Radutu, 2018, 232). As such, regardless of the usage, the quantity of goods available for use remains unchanged (Mihnea, Costache & Radutu, 2018, 232). This aspect makes non-rivalry products suitable for repeated consumption without the challenges associated with depletion. On the whole, the volume of consumption does not affect the supply of non-rivalry goods.
Non-excludability
Just like non-rivalry goods, non-excludable goods are public goods whose access or availability is not affected by present consumption. As such, the non-excludability aspect stems from the fact that current consumption does not exclude people from using a particular good or service in the fear that consumption might affect future supply (Cogolati, Hamid, & Vanstappen, 2016, 13). Accordingly, the fact that current consumption does not undermine future supply makes it impossible to restrict the use of non-excludable goods.
Challenges Associated with Allocating Public Goods
The allocation of public goods raises specific challenges, the free-rider problem being the most common issue. The free-rider difficulties stem from the fact that such products are accessed freely and therefore available to everyone. Unfortunately, this free access prevents people from seeing the need to pay for such services, which affects provision in the long run (Mansbridge, 2017, 13). For example, failure to pay taxes undermines the government’s ability to deliver services, ultimately leading to social inefficiency.
The Role of Government in The Allocation of Public Goods
In my view, the government should continue shouldering the responsibility of providing public products. Tasking the private sector to provide such services as law enforcement and other critical services would raise significant challenges, therefore making it difficult for the public to enjoy the utilities. In order to eliminate the free-rider problem, there is a need to offer such services under a different framework instead of charging them under the general tax service. For example, instead of paying taxes as payment for such services, people should pay various levies depending on the service provided. For example, security services should be paid for using a security levy. This way, people will feel the need to pay in order to stay safe.
References
Cogolati, S., Hamid, L., & Vanstappen, N. (2016). Global Public Goods and Democracy in International Legal Scholarship. Cambridge International Law Journal, 5(1), 4-30.
Introduction to economics (n.d) Khan Academy n.d., Retrieved from www.khanacademy.org/economics-finance-domain/ap-macroeconomics/basic-economics-concepts-macro/introduction-to-the-economic-way-of-thinking-macro/v/introduction-to-economics
MIT OpenCourseWare (Jan, 24, 2012) Lec 1 | MIT 14.01SC Principles of Microeconomics [Video]. YouTube. Retrieved from -www.youtube.com/watch?v=Vss3nofHpZI
Mihnea, A., Costache, R. M., & Radutu, A. (2018). Food Safety as a Global Public Good in the Context of Common Agricultural Policy Case Study: Demand Side Evaluation using Mutli-Criterial Analysis in Bulgaria. International Journal of Academic Research in Business and Social Sciences, 8(4).
Mansbridge, J. (2017). Why Do We Need Government? The Role of Civic Education in the Face of the Free-Rider Problem. Teaching Civic Engagement Across the Disciplines, 11.
Normative and positive statements (n.d) Khan Academy n.d., Retrieved from www.khanacademy.org/economics-finance-domain/ap-macroeconomics/basic-economics-concepts-macro/introduction-to-the-economic-way-of-thinking-macro/v/normative-and-positive-statements
Political-what are public goods? (n.d) Khan Academy n.d., Retrieved from www.khanacademy.org/partner-content/wi-phi/wiphi-value-theory/wiphi-political/v/what-are-public-goods
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