Which of the following scenarios best illustrates the difference between positive and normative analysis in economics?

• A. A politician argues that the government should increase the minimum wage to improve living standards.
• B. A business owner claims that higher wages will reduce company profits.
• C. An economist states that increasing the minimum wage will lead to higher unemployment rates.
• D. A worker believes that a higher minimum wage is fair for all employees.

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, testable statements about how the economy works, focusing on 'what is.' Normative analysis involves subjective opinions or value judgments about what ought to be done, focusing on 'what should be.'
2. Step 2: Examine each scenario to identify whether it is making a factual claim that can be tested (positive) or expressing an opinion or recommendation (normative).
3. Step 3: The politician's statement that the government should increase the minimum wage to improve living standards is normative because it expresses a value judgment about what ought to happen.
4. Step 4: The business owner's claim that higher wages will reduce company profits is a positive statement because it can be tested and verified with data.
5. Step 5: The economist's statement that increasing the minimum wage will lead to higher unemployment rates is a positive analysis because it predicts an outcome based on economic theory and can be empirically tested.