What this lesson teaches
I can explain that scarcity means our wants are unlimited but the resources to meet them are limited.
Syllabus 8843, 1.1.1(a). Scarcity, choice and resource allocation: The Central Economic Problem is scarcity, arising from limited resources and unlimited wants
Make a guess
A minister says: "If we raise the GST, fewer people will shop at malls." Is this a positive or a normative statement?
- Positive. It predicts what will happen, and data could test it.
- Normative. A minister said it, so it is an opinion.
- Positive, because a minister has the official data behind it.
- Normative. It is about a tax, and taxes are political.
Show the answer
Positive. It predicts what will happen, and data could test it.
It describes a cause and effect that could be checked against spending data, so it is positive even if it turns out wrong.
Economics studies how people, firms and governments make choices when resources are scarce.
Economics is about choices. Individuals decide how to spend their time and money, firms decide what to produce, and governments decide how to use tax revenue.
Microeconomics looks at individual markets and decision makers, such as the market for COEs or a hawker setting prices. Macroeconomics looks at the whole economy: growth, unemployment, inflation and the balance of payments.
Economists separate two kinds of statement. A positive statement is about what is, was or will be, and can be tested with evidence. A normative statement is about what ought to be, and depends on values.
Good exam answers use positive analysis to explain what will happen, then make normative judgements clearly and with reasons.
- Micro
- Individual markets and agents.
- Macro
- The whole economy.
- Positive
- Can be tested with evidence.
- Normative
- Depends on values: 'should'.
Worked example: Four claims about transport
Four statements are made at a town meeting.
- "Higher parking charges will reduce car trips to the mall." Positive and micro: it can be tested with data on car trips.
- "Unemployment in Singapore fell last year." Positive and macro: it can be checked against official statistics.
- "The council should prioritise buses over car parks." Normative: it depends on what people value.
- "Fares are too high for students." Normative: 'too high' is a value judgement.
Watch out for this
A statement that is false must be normative.
A positive statement can be wrong. It is positive because it can be tested with evidence, whether or not the test proves it true.
Check your understanding
Which statement is normative?
- The government should spend more on eldercare.
- A higher GST rate will raise more tax revenue.
- Singapore's population is ageing, which will raise healthcare costs.
Show the answer
The government should spend more on eldercare.
Right. 'Should' signals a value judgement that evidence alone cannot settle.