Bell workBased on what you learnt last lesson - on your own write a definition of economics on your post it note.

How does your definition compare to your neighbours?

“Economics is a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.”Lionel Robbins on Economics

Objectives

To understand the difference between Positive and Normative statements

To apply your economic understanding so far

Value JudgementsWhat is the distinction between positive and

normative statements?

How can value judgements influence economic decision making and policy?

Positive StatementsPositive Statements

A positive statement is a statement about what is and that

contains no indication of approval or disapproval

Notice that a positive statement can be wrong

The tools of positive economics are reason, logic and

empiricism

Empiricism – doctrine that all knowledge derives from experience

Normative statementsA normative statement expresses a value judgment about

whether a situation is desirable or undesirable"Monetary Policy in the UK would be more effective if Geoff

Riley was Governor of the Bank” Notice that there is no way of disproving this statementIf you disagree with it, you have no sure way of convincing

someone who believes the statement that he is wrongStatements that include indicator words such as: should,

ought, or prefer are likely to be normative rather than positive

Positive or Normative?Statement Positive or

Normative?

1 The government should target poverty by switching to means-tested benefits

2 A rise in the sterling exchange rate should lead to a decrease in the rate of inflation

3 The National Minimum Wage should be raised to £5 per hour for all workers

4 The introduction of a London congestion charge is unlikely to change motorists’ behaviour when deciding whether or not to use their car at peak times

5 The Bank of England should cut interest rates to stimulate recovery in manufacturing

6 A reduction in income taxes for low income families will improve the incentive to work and therefore reduce unemployment

7 The Government should abolish Inheritance Tax

8 The European Single Currency ought to lead to a reduction in price differentials between the UK and other European countries

9 A rise in the price of petrol will lead to an increase in the demand for rail transport

10 The government should extend the principle that patients should pay for many of the health treatments they receive under the National Health Service

AnswersStatement Positive or

Normative?

1 The government should target poverty by switching to means-tested benefits Normative

2 A rise in the sterling exchange rate should lead to a decrease in the rate of inflation

Positive

3 The National Minimum Wage should be raised to £5 per hour for all workers Normative

4 The introduction of a London congestion charge is unlikely to change motorists’ behaviour when deciding whether or not to use their car at peak times

Positive

5 The Bank of England should cut interest rates to stimulate recovery in manufacturing

Normative

6 A reduction in income taxes for low income families will improve the incentive to work and therefore reduce unemployment

Positive

7 The Government should abolish Inheritance Tax Normative

8 The European Single Currency ought to lead to a reduction in price differentials between the UK and other European countries

Positive

9 A rise in the price of petrol will lead to an increase in the demand for rail transport Positive

10 The government should extend the principle that patients should pay for many of the health treatments they receive under the National Health Service

Normative