How do economists use data in positive and normative analysis?

• A. To describe and predict economic outcomes without involving opinions
• B. To make value judgments about what economic policies should be implemented
• C. To objectively test hypotheses about how the economy works
• D. To determine the ethical implications of market outcomes

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the difference between positive and normative analysis in economics. Positive analysis deals with objective statements that can be tested and validated using data, such as describing or predicting economic outcomes.
2. Step 2: Recognize that normative analysis involves subjective value judgments about what ought to be, including opinions on economic policies and ethical considerations.
3. Step 3: Identify that economists use data primarily in positive analysis to objectively test hypotheses about how the economy works, relying on empirical evidence rather than opinions.
4. Step 4: Note that while normative analysis may use data to inform opinions, the data itself does not determine value judgments; these are based on ethical or subjective criteria.
5. Step 5: Conclude that the role of data in economics is to provide a factual basis for understanding and predicting economic phenomena (positive analysis), rather than making value-based decisions (normative analysis).