After reading the chapters from the background materials page, please address the following questions in an essay or short answer form. This paper should be 4 pages. Here is the link for the background material- /asset.php?isbn=1269879944&id=12030 Explain the difference between a positive and normative statement. Give an example of each type of statement. How can an economy achieve points that are outside the production possibilities curve? Review the Spillover Principle. Give an example of a good with a positive externality and a good with a negative externality (not mentioned in the online text). What are the best ways to allocate goods with externalities? Do some research on your own on public goods. What are the two main characteristics of this type of good? What is the biggest “problem” with allocating public goods? Do you think the government should have a role in allocating public goods, or should goods be privatized? Be sure to support your answer with references.


Economics Paper







Differences between a positive and a normative statement.

A positive statement is one that is descriptive in nature that is it describes how the world is. These statements are verifiable and can either be true or false. The approval of whether a positive statement is untrue or true can be done through data analysis or through mere observation by an individual (Pearson custom, n.d.). A normative statement, on the other hand, are considered value judgment statements which are significantly influenced by opinions and the moral makeup of people (Abrams, Rutland, & Cameron, 2003).

Normative statements are prescriptive in nature and depict how the universe should be basing its reasoning from the opinions and views of people. An example of a normative statement can be, “if every farmer would be responsible enough and use organic manure in their home gardens, we would be having the best produce in our farming productions.” This statement is considered a normative statement since it expresses an individual opinion or judgment of what ought to happen (Pearson custom, n.d.). This statement can be disputed by those who think otherwise. An example of a positive statement can be “organic manure improves crop production.” This statement is considered a positive statement because they are either true or untrue and for this case, it’s true since organic manure are commonly used in farming to improve crop production.

production possibilities curve

Production possibilities frontier can be defined as the locus of points the exhibits production levels that are attainable whenever resources are optimally used. It possible that an economy can realize points located outside their production possibility curve on condition that novel process and procedures of doing things are discovered or engineered (Pearson custom, n.d.). An example provided is when the early automotive firms began to use the assembly line process as well as during the world war II when industries began to use huge workforce to manufacture war machineries such as tanks and war planes; what happened is that the production of the economies largely impacted by the two events soar and what followed is that a new possibility frontier curve developed to capture the new change in the output level.

Thus an economy can achieve points outside the production possibility curve by discovering new procedures and process of production. However, we understand that the fundamental basic about production possibility curve is that for one good to increase another good in the curve must be compromised that is an increase in the production of one good is followed by a subsequent gradual reduction in the production of the other good. With the introduction of new technology and expansion of resources, it is anticipated that the curve will shift further from the starting points an indication that more goods and services are produced and consumed. Such shift in economic term can be interpreted as an increase in economic growth (Pearson custom, n.d.).

The Spillover Principle.

The spillover principle commonly referred to as an externality is a term used to suggest that for a number of goods produced, the benefits or costs derived from the goods are not limited to the organization or individual person that makes the decision of the quantity of the good to be consumed or produced. The implication of this statement is that in some instances firms will not have the chance to enjoy all the benefits or bear or the cost of the decisions they make (Cho, & Tay, 2016).

Examples of Positive externality and negative externality.

Externalities are recognized as types of market failures that is factors that hinder the market from attaining full optimality in the production of goods and services (Batabyal, & Nijkamp, 2014). There are two types of externalities that is positive externality and negative externality. Positive externality are one that consequences that has some benefit to the general society. However, since the benefits derived are not accounted for the price reflection of the product, the product is always higher that what consumer anticipate and too low for the good produced and consumed (Batabyal, & Nijkamp, 2014).

Market prices do not fully reflect externality. In any kind of market, a range of positive and negative externalities do exist. Negative externalities lead to excess production of a good while positive externality leads to too little product to be produced. An example of a positive externality is when a company makes a decision on funding for specialized training of its employees. Such moves will see the company benefiting a lot from increased production levels which will also benefit the consumer by meeting their demands adequately. Also, the society stands to benefit from such moves through an improvement of the education levels of its members and the quality of life (Pearson custom, n.d.). A good example of negative externality is pollution. In such a situation, the consumer and producer finances the manufactured good whereas it is the society that is on the receiving end in bearing the impacts and subsequent effects of the resultant pollution introduced as a by-product of the environment. This is considered a negative externality. Product manufacturer might bear some of the pollution cost but it the society that bears the significant impact.

Allocations of goods that comes with externalities can be very challenging. Most nations have increased the regulation framework in the goods that tends to generate negative externality while providing incentives to those that creates positive externality. Thus recommendations provided thereto to such goods is that allocation to producers should be considered on how best they are responsible for handling the externality whether positive or negative. For instance producers in the industry prone to pollution have to allocate the exclusive rights of production based on their experience to handle such negative externality (Groot, Poot, & Smit, 2015).

Characteristics of public goods

The two main characteristics of public goods is that they are non-excludable and non-rivalrous. The characteristic of non-excludability means that it is increasingly difficult to stop any citizen from accessing and consuming a public good via any mechanism. An example provided for non-excludability characteristic is breathing, an individual breathing does not exclude another person from breathing. Non-rivalrous characteristics means that when one citizen or individual consumes or uses the good; this does not deter another citizen from consuming the same good. An example provided for this feature the vitamin derived from sunlight which does not deprive anyone else of getting fewer vitamins when exposed to the sun.

Allocating public goods?

The biggest challenge in allocation of public goods is the free rider problem. This happens when some people choose to take advantage of publicly provided resources and goods without making some payment deemed necessary to improve product or service provided. The challenge arises in a market characterized with non-diminishing supply of consumers of public goods (Groot, Poot, & Smit, 2015). .

The two main characteristics of public goods discussed above that is non-excludability, and non-rivalrous significantly contributes to this challenge. Non-excludability feature implies that suppliers will not benefit from charge they place to goods since consumers will still benefit irrespective of whether they incur cost of not. Thus this is the main challenge of public good allocation; the free riders (Groot, Poot, & Smit, 2015).

Do you think the government should have a role in allocating public goods, or should goods be privatized?

Both of extremes that is privatization of public goods allocations and allocations through the government have their own advantages and disadvantages. One demerit of government intervention is that it may lead to inefficient allocation while the greatest advantage is that promotes equality. I would recommend that depending on degree of income and wealth disparity; the government should be least involved and private sectors be given the role when the disparity is less and should be more involved when the disparity is huge.




Pearson custom. (n.d.). Introduction to economics. Retrieved from

Abrams, D., Rutland, A., & Cameron, L. (2003). The development of subjective group     dynamics: Children’s judgments of normative and deviant in‐group and out‐group

individuals.     Child development, 74(6), 1840-1856.

Batabyal, A. A., & Nijkamp, P. (2014). Positive and negative externalities in innovation, trade,     and regional economic growth. Geographical Analysis, 46(1), 1-17.

Cho, E., & Tay, L. (2016). Domain Satisfaction as a Mediator of the Relationship Between     Work–Family Spillover and Subjective Well-Being: A Longitudinal Study. Journal of     Business and Psychology, 31(3), 445-457.

Groot, H. L., Poot, J., & Smit, M. J. (2015). Which agglomeration externalities matter most and     why?. Journal of Economic Surveys.

Weston, S. C. (1994). Toward a better understanding of the positive/normative distinction in     economics. Economics and Philosophy, 10(01), 1-17.


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