Which of the given two statements involves positive economic analysis and which normative? How do the two type of analysis differ?
a. Gasoline rationing (allocating to each year to each individual an annual maximum amount of gasoline which can be purchased) is a poor social policy as it interferes along with the workings of the competitive market system.
b. Gasoline rationing is policy under which more people are made worse off than are made better off.
Positive economic analysis explains what is. Normative economic analysis explains what have to be. We know from economic analysis that constraint placed on supply will change the market equilibrium.
- Statement (a) merges both kind of analysis. Firstly, statement (a) makes positive statement that gasoline rationing "interferes along with the workings of the competitive market system." Secondly, by making the normative statement (that means a value judgment) that gasoline rationing is a "poor social policy," statement (a) confines itself to conclusion derived from positive economic analysis of the policy.
- Statement (b) is positive because it defines what the effect of gasoline rationing is without making a value judgment regarding the desirability of the rationing policy.