Answer to Question #50552 in Microeconomics for marcha

Question

1. governments often use a sales tax to raise tax revenue which is the tax per unit times the quantity sold. Will a specific tax raise more tax revenue if the demand curve is inelastic or elastic at the original price? Explain.
2. in tabular form differentiate between positive and normative economic analysis. Give an example in each case.

Answer 1

1. If the demand is elastic, the increase in tax will decrease tax revenue, because the change in price will be higher, than change in quantity. But if the demand is inelastic, the increase in tax will increase tax revenue, because the change in price will be lower, than change in quantity.
2. Positive economics is objective and fact based, while normative economics is subjective and value based. Positive economic statements do not have to be correct, but they must be able to be tested and proved or disproved. Normative economic statements are opinion based, so they cannot be proved or disproved.