HOMEWORK ONE 1
Chapter One
1.1 Explain how one would use positive and normative analysis to evaluate the desirability of this
proposed policy.
Typically positive analysis will illustrate economic relations of the policy being studied.
Another perspective is that it can help answer the question of ‘what might be,’ but does not provide a
judgment whether the policy is good or bad. Normative analysis deals with the desirability of the
policy, or ‘what should be,’ and is impacted by valued judgment (Browning & Zupan, 2015). In regards
to higher wages, positive analysis can be used to determine the consequences (e.g. elevated inflation,
resulting layoffs), and utilize normative analysis to make the final decision.
1.3 Explain why it is important to look at a good’s real price as opposed to its nominal, or absolute,
price.
In an economic sense, price as the population understands it, means the ‘real price’ not nominal.
Nominal price reflects market pressures and inflation, whereas real price reflects the actual
availability of goods and services accordingly (Browning & Zupan, 2015). Furthermore, the value of
money is inversely related to the price of goods and services. An increase in commodities will therefore
imply the overall value of money has declined; that is to say, at a given point in time more money is
being disbursed for the same quantity of goods or services. Real price can be calculated by adjusting
this nominal price for time value of money or the current rate of inflation (Browning & Zupan, 2015).
1.5 Relying on the concept of opportunity cost, explain why vending machines are so prevalent in
Tokyo versus more traditional purveying methods.
There could be two reasons as to why vending machines are more prevalent in Tokyo than other
larges cities such as London or New York. First, the needs of a growing population may not be entirely
met by grocery stores, likely due to the inconvenience of grocery stores versus vending machines. The
business nature of Tokyo is long hours at work with abnormally long commute times. Picking up
HOMEWORK ONE 2
groceries and preparing meals are less appealing than vending machines. Consequently, from an
economic perspective, opportunity cost of opening, owning, or operating a grocery store are then less
profitable. Grocery stores have overhead costs or accounting costs associated with the daily operations,
compared to little to no accounting costs in vending machines. Overall, vending machine introduction
proves a viable, more profitable opportunity in Tokyo for these reasons.
