Question

I Need help with questions 1,2,3 and A,B,C

1. Suppose you were to analyze the state and the economy at the moment. You say to your friends, “The economy has been growing more slowly in the last 10 years than it did in the previous 20 years. The government should cut taxes to stimulate the economy.” What portion of that statement is “positive” and what portion of that statement is “normative”?
2. Suppose you decided to study all last week for this exam instead of doing anything fun. What was the opportunity cost of doing so? Why might the opportunity cost (defined in terms of fun lost) be expected to increase?
3. Obesity and smoking are both linked to numerous adverse health consequences, including heart disease, cancer, and strokes, among others. The Affordable Care Act permits health insurance companies to charge people higher premiums if they smoke or are obese. But the law forbids the companies from charging higher premiums or denying coverage to people who have suffered strokes or have heart disease or cancer.
a. Can you suggest a rational argument why the law might be structured this way?
b. How could this be designed to affect a shift in the demand curve for soft drinks or cigarettes?
c. Could this law be a better way to influence purchase of soft drinks rather than the tax the Bloomberg tried to enact? You must be sure to describe and explain Bloomberg’s prohibition.

Answer 1

1)Positive economics is the branch of economics that deals with the explanation of an economic phenomenon.It is objective and based on facts.Whereas normative economics is subjective.In the statement the portion "The economy has been growing more slowly in the last 10 years than it did in the previous 20 years" is positive and "Government should cut taxes to stimulate the economy" is normative.

2)Opportunity cost is the cost of next best alternative that is forgone when a choice is made.Here the opportunity cost will be the next best alternative that you had sacrificed for studying like having fun,watching movies etc.Opportunity cost is a subjective concept and varies from person to person.It may be expected to increase if the alternative that you had given up gives you more satisfaction than studying.

3.A)The law is structured so as to reduce the consumption of goods that are harmful for health.Higher premiums will make people hesitant towards smoking etc.At the same time it does not deny claims of people suffering from heart disease,cancer etc. as everyone does not smoke or are obese.

3.B)The law will induce consumers to reduce the consumption of cigarettes and soft drinks.As a result the demand curve of these commodities will shift towards the left.

3.C)A direct ban on soft drinks(Bloomberg's prohibition) will not be effective and also creates controversies.Whereas the Affordable Care Act is a better way as consumers themselves will reduce their consumption.