Shanta is considering two business opportunities. In the first business Shanta w

Question

Shanta is considering two business opportunities. In the first business Shanta would have to move which would cost her $10,000. The revenues from the first business would $100,000, and production costs would be $40,000. The second business would have accounting profit $30,000. If Shanta pursues the first business opportunity,

which item(s) would be included in the explicit costs?

which item(s) would be included in the implicit costs?

what would be her economic profit?

Identify each of the following as a positive statement or a normative statement:

There is higher demand for Brussels sprouts than there is for bananas ???

The government should subsidize gasoline to make it more affordable ???

It is unfair that some people earn more than others ???

The increase in U.S. oil production has led to a decrease in oil prices ???

Explanation / Answer

Explicit costs = $10000

Implicit Cost = $40000

Economic Profit = $100,000 - $10,000 - $40000 = $50,000

There is higher demand for Brussels sprouts than there is for bananas: Positive

The government should subsidize gasoline to make it more affordable: Normative

It is unfair that some people earn more than others : Positive

The increase in U.S. oil production has led to a decrease in oil prices: positive

Explanation:

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 economicstatements are opinion based, so they cannot be proved or disproved.

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