Question

Select the normative statement that completes the following sentence: If the minimum wage is raised rapidly, then a. inflation will increase. b. workers will gain their rightful share of total income. c. profits will fall. d. unemployment will rise.

Short answer

The normative statement is: If the minimum wage is raised rapidly, then workers will gain their rightful share of total income.

Step-by-step solution

Define normative statements

Normative statements are value judgments that cannot be tested or proven. They make a claim about whether something is right or wrong, good or bad, or should or should not happen.

Understanding minimum wage

A minimum wage is the legal minimum amount that a worker must be paid for their work. It is considered a policy tool for reducing poverty, but its effects on the economy, inflation, employment, and income distribution are widely debated.

Analyze each option in relation to the given sentence

We now need to analyze each option and determine which one expresses a value judgment. a. If the minimum wage is raised rapidly, then inflation will increase. This statement is based on a potential result of the increase in the minimum wage, and it can be tested or proven using economic data. b. If the minimum wage is raised rapidly, then workers will gain their rightful share of total income. This statement expresses a value judgment, as it evaluates the fairness of income distribution. It is not possible to test or prove what the "rightful share" of total income is for workers. This is a subjective view and highlights a concern for social justice. c. If the minimum wage is raised rapidly, then profits will fall. This statement describes a potential effect of a rapid increase in minimum wage on businesses' profits, but it can be tested or proven using economic data. d. If the minimum wage is raised rapidly, then unemployment will rise. This statement describes another potential consequence of increasing the minimum wage, which can also be tested or proven using economic data.

Identify the normative statement

Based on the analysis of each statement, the normative statement among the options is: b. If the minimum wage is raised rapidly, then workers will gain their rightful share of total income.

Key concepts

Minimum Wage

When we talk about minimum wage, we're discussing the lowest legal remuneration that employers can pay their workers. The idea of minimum wage is surrounded by various economic theories and practical considerations.

Supporters argue that a minimum wage provides a safety net for workers, ensuring they can afford a basic standard of living. Critics, however, point out that higher wages can lead to increased production costs for businesses, which may in turn reduce employment or increase prices for consumers.

What's crucial to understand is that the minimum wage is a tool used within economic policy to influence the labor market. When deciding on changes to the minimum wage, policymakers must balance between boosting the earnings for low-wage workers and the potential impacts on employment levels and business costs.

Income Distribution

Income distribution refers to how a nation's total earnings are divided among its population. It is a core aspect of economic discussions, as it affects living standards, social stability, and economic health.

Economists analyze income distribution to understand levels of inequality, to evaluate the effectiveness of tax and social welfare policies, and to gauge the distribution's impact on economic growth.

Questions of 'fairness' in income distribution often arise, with normative statements like the assertion that workers should gain their 'rightful share' of total income. Such claims involve subjective judgments about what is considered fair or equitable, which cannot be measured or proven with data, unlike positive economic statements that can be tested empirically.

Economic Policy Analysis

Economic policy analysis is a discipline that evaluates the merits and drawbacks of economic policies using various analytical tools. Economists use both empirical data (positive economics) and normative judgments (normative economics) in this field.

The goal is to understand the potential impact of policy decisions and recommend courses of action that could lead to the desired economic outcomes. Analysts employ models to predict the consequences of policy changes on different economic indicators such as inflation, employment rates, and economic growth.

In discussing economic policy analysis, one must distinguish between what can be measured and what reflects personal values or societal goals. For example, the statement about raising the minimum wage and its impact on workers' income share is normative, blending economic theory with social values.