Erma and Wayne are both economists. Erma thinks that taxing consumption, rather

Question

Erma and Wayne are both economists. Erma thinks that taxing consumption, rather than income, would result in higher household saving because income that is saved would not be taxed. Wayne does not think that household saving would respond much to a change in the tax laws. In this example, Erma and Wayne
Answer
A. have different normative views about tax policy.
B. disagree about the validity of a positive theory.
C. must both be incorrect because economists always agree on policy issues.
D. None of the above is correct.

Explanation / Answer

Erma and Wayne are both economists. Erma thinks that taxing consumption, rather than income, would result in higher household saving because income that is saved would not be taxed. Wayne does not think that household saving would respond much to a change in the tax laws. In this example, Erma and Wayne

Answer
A. have different normative views about tax policy. - NO, normative theories are "what SHOULD" we do. These are subjective.
B. disagree about the validity of a positive theory. - YES, because they disagree about the processes by which taxes work to achieve their goals. (B) is the correct answer.
C. must both be incorrect because economists always agree on policy issues.
D. None of the above is correct.

I hope that you found this explanation beneficial towards your understanding of the material, and I'd sincerely appreciate a "Lifesaver" rating. It would truly make my day! :)

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