Which of the following statements best illustrates positive analysis, assuming ceteris paribus?

• A. The government should increase taxes to reduce income inequality.
• B. Society ought to provide free healthcare for all citizens.
• C. If the price of coffee increases, the quantity demanded of coffee will decrease.
• D. It is unfair that some people earn more than others.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the difference between positive and normative analysis. Positive analysis deals with objective, testable statements about how the world works, often expressed as cause-and-effect relationships. Normative analysis involves subjective judgments about what ought to be, based on values or opinions.
2. Step 2: Review each statement and classify it as positive or normative. For example, statements that include words like 'should,' 'ought,' or express fairness or value judgments are normative.
3. Step 3: Identify the statement that makes a factual claim about economic behavior without expressing an opinion or value judgment. This is the hallmark of positive analysis.
4. Step 4: Recognize that the statement 'If the price of coffee increases, the quantity demanded of coffee will decrease' is a testable hypothesis about economic behavior, assuming ceteris paribus (all else equal). This fits the definition of positive analysis.
5. Step 5: Conclude that the correct choice is the statement about the price and quantity demanded of coffee, as it illustrates positive analysis by describing a cause-and-effect relationship without making a value judgment.