Question

Which of the following is a statement of normative economics? a. The minimum wage is good because it raises wages for the working poor. b. The minimum wage is supported by unions. c. The minimum wage reduces the number of jobs for less-skilled workers. d. The minimum wage encourages firms to substitute capital for labor.

Short answer

The answer is a. The minimum wage is good because it raises wages for the working poor. This statement represents normative economics because it contains a value judgment.

Step-by-step solution

Analyze the statements

Let's take a closer look at each statement: a. The minimum wage is good because it raises wages for the working poor. b. The minimum wage is supported by unions. c. The minimum wage reduces the number of jobs for less-skilled workers. d. The minimum wage encourages firms to substitute capital for labor.

Identify the normative economics statement

Recalling that normative economics deals with value judgments or opinions, we can eliminate the statements that are based on facts or cause-and-effect relationships: a. The minimum wage is good because it raises wages for the working poor. (This statement contains a value judgment, as it expresses the belief that raising wages for the working poor is a good thing.) b. The minimum wage is supported by unions. (This statement is a fact, as it describes the position of unions regarding the minimum wage.) c. The minimum wage reduces the number of jobs for less-skilled workers. (This statement reflects a cause-and-effect relationship, as it discusses the potential consequences of the minimum wage on less-skilled workers.) d. The minimum wage encourages firms to substitute capital for labor. (This statement is a cause-and-effect relationship, as it explains how firms might adjust their strategies in response to the minimum wage.)

Confirm the correct statement

Based on our analysis, the statement representing normative economics is: a. The minimum wage is good because it raises wages for the working poor. (This statement contains a value judgment, indicating that it is a normative economics statement.) Thus, the answer is statement a.

Key concepts

Minimum Wage

Minimum wage refers to the lowest legal salary that employers can pay their employees. This concept is designed to ensure that workers earn enough to maintain a basic standard of living. The main goal of instituting a minimum wage is often to protect workers from exploitation and ensure that they can afford necessities.

The minimum wage can vary widely from country to country, and it is subject to change over time as economic conditions evolve. There are several arguments for and against setting a minimum wage, which typically revolve around its impact on employment and the economy.

• It helps reduce poverty by increasing the earnings of low-income workers.
• It can improve worker productivity as employees may feel more motivated.
• Critics argue it can lead to job losses, as businesses may not afford to retain as many workers.

Value Judgment

A value judgment is a statement that expresses a subjective opinion formed based on personal beliefs or ethical considerations. These are not objective facts, but rather reflect someone's moral or ethical stance. In economics, value judgments are pivotal in discussions around policies affecting society, such as the minimum wage.

For instance, the statement "The minimum wage is good because it raises wages for the working poor" involves a value judgment. It conveys the belief that helping the working poor by raising their wages is inherently positive.

• Value judgments in economics often influence policy decisions and debates about welfare and equity.
• They can't be proven true or false but are open to interpretation and argument.
• Understanding when a statement is a value judgment helps in distinguishing between objective analysis and opinion-based assertions.

Economic Consequences

Economic consequences refer to the effects that economic policies or events can have on a market or economy. When it comes to the minimum wage, the economic consequences are widely debated and can be both positive and negative.

Positive outcomes might include higher incomes for low-wage workers and reduced poverty levels. However, there are also potential drawbacks, such as:

• Increased business costs, which might lead to higher prices for consumers.
• Potential reductions in employment opportunities, especially for less-skilled workers.
• Shift towards automation or the substitution of labor with capital.

Understanding these consequences is critical for policymakers as they balance between aiding workers and maintaining economic stability.

Unions and Minimum Wage

Unions often play a significant role in advocating for higher minimum wages. By representing the collective interests of workers, they lobby for labor laws and regulations aimed at protecting workers' rights and economic welfare.

Unions argue that increasing the minimum wage can lead to:

• Better living standards for low-income workers.
• Greater economic fairness and a reduction in the income gap.
• Enhanced worker morale and productivity.

On the other hand, unions also face critiques, such as claims that higher minimum wages could cause layoffs or discourage businesses from hiring. Despite these debates, unions continue to be staunch supporters of minimum wage laws, arguing that the broader social and economic benefits outweigh the downsides.