Chapter 1, Problem 4MCQ

To determine

The question requires us to identify the most suitable normative statement.

Explanation of Solution

The normative statement represents the ‘what should be’ situation in an economy.

The given options, the rising gasoline price, fall in gas price in the near future, cars run on fuels, and simple law of demand which is saying when price of gasoline increases, its demand will fall, are the example of positive statement, that is, the way it works usually.

Another statement “price of gasoline is too high” is a normative statement because this statement is representing something that is not usual or price should not be that high. The price of gasoline should be low or at its average level.

So, the statement “price of gasoline is too high” is a normative statement.

Economics Concept Introduction

In positive economics, economic analysis help in getting the answer as exactly it is or the way it is. Such analyses have definite right or wrong answers. On the other hand, the economic analysis that tries to find the solution based on the ‘how the economy should be’ approach is considered normative economics.