“c01ThinkingLikeAnEconomist_PrintPDF” — 2022/7/18 — 23:09 — page 11 — #9
3. Positive economics and normative economics a. Distinguish positive economics from normative economics. b. Classify the following economic statements as to whether they are positive or normative. Be prepared to justify your answer.
(2 marks) (4 marks)
Is this statement a positive or normative statement? Why?
Statement
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i. Multinational companies operating in Australia should pay more tax.
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ii. If Australia’s annual inflation rate rose to 3.5 per cent, this would reduce the purchasing power of some individuals.
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iii. Research shows that paying young people a lower wage than that for adults helps to reduce youth unemployment rates.
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iv. Income inequality in Australia is too high and should be reduced. Solutions and sample responses are available online.
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1.3 The basic economic problem of relative scarcity
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KEY KNOWLEDGE
• resources (factors of production such as land, labour and capital) used to satisfy needs and wants • the basic economic problem of relative scarcity and the need for economic decision making
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Source: VCE Economics Study Design (2023–2027) extracts © VCAA; reproduced by permission.
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1.3.1 Overview of relative scarcity
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In total, we humans have many wants ranging from love and friendships, to social status and of course all those material things that make life more pleasant and exciting. Overall, we say that our material wants are unlimited or infinite. Additionally, to survive we have certain needs — we must have a certain quantity of essential food, shelter, healthcare and clothing. It should also be pointed out that our list of needs can change over time. Today, it is likely that some goods that were once seen as luxuries by your parents and grandparents, have now become a necessity for you.
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In order to satisfy all these material needs and especially wants, society would Wants are goods and services we have to be able to make infinite quantities of goods and services. Regrettably, this would like to have that make life is simply not possible. We lack sufficient resources or productive inputs needed more enjoyable. However, they are not essential for survival. to allow us to produce this massive level of output. As shown in Figure 1.4, this Needs are goods and services imbalance between unlimited wants on the one hand and limited resources on the essential for life (e.g. basic food, other is called the basic economic problem of relative scarcity. Because resources shelter and clothing). are relatively scarce, we can’t have all the things we would like. This means that we are forced to make choices about which wants will be satisfied (and which will not).
TOPIC 1 Thinking like an economist
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