Solutions 2

1) Provide three original examples of positive economics
and the three associated cases of normative economics
• In college, there are more women than men /
Colleges should have the same number of men
and women.
• Fewer and fewer students decide to go to
college / The number of students who choose to
study at university should be larger.
• There are two million pigeons in Barcelona /
Tourists who feed them should be fined.
2) Provide one example of positive externality and one
example of negative. Try to be original and do not use
examples from class
• What’s an externality?
• An externality is an unexpected result in some
economic activity which can have a positive or a
negative social consequence; that is, a benefit or
cost which is not reflected in the market
• Intervention?
Solution to 2)
• Positive externality: Under my house they opened a bakery
and the aroma of bread improves my morale in the
• Negative externality: Under my house they opened a bakery
and the aroma of bread makes me hungry, … I gained two
kilos as a result.
• The state can sanction and fund various activities,
according to the externality produced.
• An externality has to be the result of economic action. For
example, the fact that others have flu, by itself, is not an
3) Discuss a case in favor of the income tax. Discuss another
one against it. Think in terms of the efficiency and equality
concepts and the relation with positive/normative economics
• It is necessary to argue the reasons regarding positive
and normative economics
• Example:
– We want to ensure state services, defense, etc (normative economics).
– In order for the state to have this money, it should collect taxes (Positive
– The state could control some companies to make money, but history has
shown that public business often have losses (Positive Economy).
– An income tax can “solve” this problem, because it does not distort the
incentives of the population in the activity they want to develop, but it
reduces incentives to work in general (Positive Economy).
– A "per capita" tax does not distort anyone and is simpler to calculate
(positive economics)
– We might “prefer” the tax on income because is more equitable
– We might “prefer” the per capita tax because is more efficient
4) The minimum wage
• What’s the minimum wage?
• What’s its purpose?
• What’s its real effects?
• Who promotes it?
4) The minimum wage
a) There will be unemployment, because at the minimum
wage there are more people willing to work than jobs
Real wage
Labor supply
N Eq
Minimum wage
Labor demand
No. workers/hours
4) The minimum wage
b) No effect
Real wage
Labor supply
N Eq
Minimum wage
Labor demand
No. workers/hours
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