1) Provide three original examples of positive economics and the three associated cases of normative economics

• In college, there are more women than men / Colleges should have the same number of men and women.

• Fewer and fewer students decide to go to college / The number of students who choose to study at university should be larger.

• There are two million pigeons in Barcelona / Tourists who feed them should be fined.

• What’s an externality?

• An externality is an unexpected result in some economic activity which can have a positive or a negative social consequence; that is, a benefit or cost which is not reflected in the market

• Intervention?

2) Provide one example of positive externality and one example of negative. Try to be original and do not use

examples from class

Solution to 2)• Positive externality: Under my house they opened a bakery

and the aroma of bread improves my morale in the mornings

• Negative externality: Under my house they opened a bakery and the aroma of bread makes me hungry, … I gained two kilos as a result.

• The state can sanction and fund various activities, according to the externality produced.

• An externality has to be the result of economic action. For example, the fact that others have flu, by itself, is not an externality

• It is necessary to argue the reasons regarding positive and normative economics

• Example:– We want to ensure state services, defense, etc (normative economics).– In order for the state to have this money, it should collect taxes (Positive

Economy)– The state could control some companies to make money, but history has

shown that public business often have losses (Positive Economy).– An income tax can “solve” this problem, because it does not distort the

incentives of the population in the activity they want to develop, but it reduces incentives to work in general (Positive Economy).

– A "per capita" tax does not distort anyone and is simpler to calculate (positive economics)

– We might “prefer” the tax on income because is more equitable– We might “prefer” the per capita tax because is more efficient

3) Discuss a case in favor of the income tax. Discuss another one against it. Think in terms of the efficiency and equality

concepts and the relation with positive/normative economics

4) The minimum wage

• What’s the minimum wage?

• What’s its purpose?

• What’s its real effects?

• Who promotes it?

4) The minimum wage

a) There will be unemployment, because at the minimum wage there are more people willing to work than jobs available

Minimum wage

Labor supply

Labor demand

N Eq

Real wage

No. workers/hours

Eq

4) The minimum wage

b) No effect

Minimum wage

Labor supply

Labor demand

N Eq

Real wage

Eq

No. workers/hours