Examkin

Question

Difficulty: Very hardDefinition and Scope of Economics

An economic researcher in Port Harcourt observes that an upward adjustment in cold-room electricity tariffs increases the operational preservation cost per unit of fish, causing individual fish vendors to raise their retail prices to maintain profit margins. The researcher subsequently submits a report asserting that the Rivers State Government ought to provide targeted electricity subsidies to agricultural preservation vendors to safeguard household nutrition. Which of the following statements correctly categorizes the methodological nature and economic scope of the researcher's observation and assertion?

  1. The observation falls under positive microeconomics, while the assertion represents a normative economic judgment.Answer
  2. B
    The observation falls under normative macroeconomics, while the assertion represents a positive microeconomic statement.
  3. C
    Both the observation and the assertion belong exclusively to macroeconomics because state government tariff policies affect aggregate market price levels.
  4. D
    Both the observation and the assertion are positive statements within microeconomics because they analyze cause-and-effect relationships in a single commodity market.

Answer

The observation is a positive microeconomic statement because it objectively analyzes cause-and-effect relationships regarding individual firm costs and prices, whereas the policy proposal is a normative statement because it incorporates value judgments regarding what government policy ought to be.
The observation analyzes cause-and-effect relationships between production costs (electricity tariffs) and individual product prices (retail fish vendor prices), making it a positive microeconomic statement. In contrast, the report's assertion that the government 'ought to' grant subsidies reflects a value judgment on desirable public policy, placing it squarely in normative economics.

Step-by-Step Solution

1
Distinguish between Microeconomics and Macroeconomics in the context
Analyzing individual fish vendors, single commodity pricing, and specific cold-room electricity tariffs examines individual economic units, which strictly defines the scope of microeconomics.
Microeconomics focuses on individual consumers, firms, and specific product markets rather than aggregate economy-wide indicators.
2
Distinguish between Positive Economics and Normative Economics in the statements
The observation ('tariff increases raise preservation cost leading vendors to raise prices') is verifiable objective analysis (positive economics). The assertion ('government ought to provide targeted subsidies') expresses a value-laden policy recommendation (normative economics).
Positive economics deals with objective facts and empirical cause-and-effect ('what is'), while normative economics involves ethics, policy preferences, and value judgments ('what ought to be').
3
Synthesize the scope and methodological nature of both components
The observation is positive microeconomics, and the recommendation is a normative judgment.
Combining the scope (microeconomic level of individual market units) and methodology (objective analysis vs. prescriptive policy judgment) yields the exact classification.

Key Concept

Scope and Methodology of Economics (Micro vs. Macro, Positive vs. Normative)
Rate this question

Topics

Definition and Scope of Economics

More questions from this topic