Q5 of 39 Page 1

Discuss briefly the concept of normative economics, with suitable example.

In principle, there are more than just one way to solve the central problems of an economy. The mechanisms are different because of the different types of analysis they use, and can benefit the country in different ways.


Normative economic analysis involves evaluating whether these mechanisms are desirable or not. It basically tries to evaluate the mechanism instead of simply figuring out how it functions. It offers ideologically prescriptive judgments towards economic development, investment projects, statements and scenarios. It does not rely on objective data like positive economics does. Instead, it concerns itself with value judgments and expressing ideological judgments regarding policy changes.


Example – cutting taxes in half to increase disposable income levels.


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21

‘‘Higher Gross Domestic Product (GDP) means greater per capita availability of goods in the economy.’’ Do you agree with the given statement? Give valid reason in support of your answer.

 22

(a) Distinguish between appreciation of home currency and depreciation of home currency.

(b) What is meant by ‘‘current account surplus’’?


(c) State any one source of supply of foreign currency for a country.


 9

The market for a good is in equilibrium. Explain, using a diagram, how an improvement in technology for producing the good would affect the equilibrium price and equilibrium quantity, keeping other factors constant.

 11

(a) ‘‘A firm under perfect competition is a price taker, whereas, a firm under monopoly is a price maker.’’ Defend or refute the given statement with valid reasons.

(b) What is meant by ‘‘product differentiation’’? Explain with example.