Which of the following best describes what an effective policy specifies in the context of positive and normative analysis?

• A. Only the empirical evidence supporting the policy
• B. Both the desired outcomes (normative) and the means to achieve them (positive)
• C. The historical context of previous policies
• D. Only the moral justification for government intervention

Answer: (B)

Verified step by step guidance

1. Understand the difference between positive and normative analysis in economics: Positive analysis deals with objective, fact-based statements about how the economy works, while normative analysis involves subjective judgments about what ought to be done based on values or goals.
2. Recognize that an effective policy in microeconomics should combine both aspects: it should specify the desired outcomes (which is the normative part, reflecting goals or values) and the means to achieve those outcomes (which is the positive part, based on empirical evidence and cause-effect relationships).
3. Evaluate each option by checking if it includes both the normative and positive components: for example, 'Only the empirical evidence' covers just the positive side, while 'Only the moral justification' covers only the normative side.
4. Identify that the best description of an effective policy is one that explicitly states both the goals (normative) and the methods or mechanisms (positive) to reach those goals.
5. Conclude that the correct answer is the option that mentions both the desired outcomes (normative) and the means to achieve them (positive), as this fully captures what an effective policy specifies.